Store Accounting and Stock Accounts
9 minute read
What you will learn
- Calculate the value of stock
- Compare methods of pricing stock
- Deal with deficiencies and surpluses found at stock-taking
- Describe the main stock accounts
- Explain credit transactions and bills payable and receivable
- Use vouchers to tally records with the cards
Key points
- Stock value = quantity × unit cost, added up across all items.
- Methods of pricing stock include first-in first-out, weighted average cost and replacement cost.
- A deficiency is less stock than the record shows. A surplus is more. Both are investigated and corrected.
- The capital account shows the money put into the business or fund.
- The petty cash account records small cash payments on an imprest system.
- The sales journal lists sales in order, and the sales ledger shows what each customer owes.
- Bills payable are money the pharmacy owes. Bills receivable are money owed to the pharmacy.
Why stores keep accounts
A store holds goods that cost money. Store accounting answers: What is the stock worth? Has any been lost? Who owes us, and whom do we owe? The records are checked by auditors (internal and external) as part of stock verification.
Valuing stock
value of an item = quantity × unit cost
value of the stock = total of all the items
Example. 200 packs at ₦50 and 100 packs at ₦80.
| Item | Quantity | Unit cost | Value |
|---|---|---|---|
| Batch 1 | 200 | ₦50 | ₦10 000 |
| Batch 2 | 100 | ₦80 | ₦8 000 |
| Total | 300 | ₦18 000 |
Methods of pricing stock
When the same item is bought at different prices, the store needs a rule for the unit cost.
| Method | How it works |
|---|---|
| First in, first out (FIFO) | Issues are priced at the cost of the oldest stock first |
| Weighted average cost | The average cost of all the stock, weighted by quantity |
| Replacement cost | The cost to buy the item today |
Worked example: weighted average
100 units were bought at ₦40, and 200 units at ₦46.
- Total cost = (100 × 40) + (200 × 46) = 4 000 + 9 200 = ₦13 200
- Total units = 100 + 200 = 300
- Average cost = 13 200 ÷ 300 = ₦44 per unit
A revolving fund uses replacement cost for pricing, so that sales can restock the shelf.
Deficiencies and surpluses
At stock-taking, the physical count is compared with the ledger.
- A deficiency is when the count is less than the ledger.
- A surplus is when the count is more than the ledger.
Example. The ledger shows 450 units. The count is 440. The unit cost is ₦44.
- Deficiency = 450 − 440 = 10 units
- Value = 10 × 44 = ₦440
Steps:
- Recount to confirm.
- Look for the cause: a wrong entry, a missing voucher, an issue not recorded, or loss.
- Report it to the person responsible.
- Correct the record with an approved entry, and never change it secretly.
A surplus should be investigated in the same way, because it may mean a receipt or issue was wrongly recorded.
Tallying records and vouchers
The issue voucher (IV) and receipt voucher (RV) are the documents behind every entry. To "tally with the cards", check that:
- the total received on the vouchers equals the receipts on the bin card and ledger;
- the total issued on the vouchers equals the issues on the card and ledger;
- the opening balance + receipts − issues equals the closing balance and the shelf count.
The main accounts
| Account | What it records |
|---|---|
| Capital account | The money or goods put into the business or fund by the owners, or as seed capital |
| Petty cash account | Small cash payments, kept on an imprest system, with a voucher for each |
| Sales journal | A list of sales in the order they happen, with date, customer, item and amount |
| Sales ledger | An account for each customer showing what they have bought, paid and owe |
| Control account | A summary account whose total must agree with the total of the individual accounts, as a check |
| Bills book | A record of bills payable and bills receivable |
Credit transactions
A credit sale means the customer takes the goods now and pays later. The amount is entered in the sales ledger as owed, and when the customer pays, it is cleared.
- Bills receivable are amounts owed to the pharmacy, such as credit sales.
- Bills payable are amounts the pharmacy owes, such as an unpaid supplier invoice.
Check that bills are paid on time, and that those owing money are reminded. Too much credit starves the business of cash.
Joint ventures and partnerships
In a joint venture, two or more people or groups work together on a particular project and share its profit or loss, with accounts for the project. In a partnership, two or more people run a business together, and a partnership account shows each partner's capital and share of profit. A pharmacy owned by partners keeps these accounts.
Good practice
- Record every transaction on the day it happens.
- Support every entry with a voucher or receipt.
- Keep cash and stock separate from personal property.
- Have records checked by a second person.
- Never remove or alter a document without approval.
All prices and amounts in these lessons are made up to practise the arithmetic.
Exam focus
- Calculate the value of stock from quantities and unit costs.
- Calculate a weighted average cost per unit.
- State what happens to a deficiency or a surplus found at stock-taking.
- Common mistake: confusing bills payable (owed by us) with bills receivable (owed to us).
Quick check
Test yourself before you move on. Pick an answer to see the explanation.
1.A store holds 200 packs costing ₦50 each and 100 packs costing ₦80 each. What is the total value of the stock?
2.100 units were bought at ₦40 and 200 units at ₦46. What is the weighted average cost per unit?
3.The ledger shows 450 units but the count is 440. Each unit costs ₦44. What is the value of the deficiency?
4.A supplier sends an invoice that the pharmacy has not yet paid. In the pharmacy's records this is:
5.Which account records small day-to-day cash payments?