FAC CHP3

CHAPTER 3
ACCOUNTING FOR INVENTORY

THEORY QUESTIONS

1. a. Purchases are goods bought by the business for the purpose of reselling
while sales are the sales of goods which the business bought with the prime
intention of resale.

b. Returns inwards are the goods returned by the buyer to the business while
returns outwards are the goods returned by the business to the supplier.

c. Debit note is a document sent to the supplier to show the reduction in the
amount owing to the supplier while credit note is a document sent to the buyer to
show the reduction in the amount owing by the buyer.

2. Inventory is the asset held for sale in the ordinary course of business. It is
also the asset in the production for such sale and the asset to be consumed in
the production of goods or services for sale. Inventory comprises of raw
materials, work in progress and finished goods.

3. a. T
b. F
c. F
d. F
e. T

MULTIPLE-CHOICE QUESTIONS

a. A
b. D
c. B
d. C
e. D

PROBLEMS

1.

a. Asset debtor decrease

Asset inventory increase or purchase expense increase
b. Asset inventory increase or purchase expense increase
Asset cash decrease
c. Asset cash decrease
Capital decrease
d. Advertising expense increase
Asset bank decrease

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e. Asset inventory increase or purchase expense increase

Liability creditor increase
f. Wages expense increase
Asset bank decrease
g. Asset furniture increase
Asset bank decrease
h. Interest revenue increase
Asset bank increase
i. Asset bank increase
Asset cash decrease

2.

No. Transactions Effects

Start business with RM10,000 in the Asset Bank Increase
a.
bank Capital Increase
Credit purchases from Amirul Sdn. Liability Creditors Increase
b.
Bhd. RM1,000 Purchases Expense Increase
Asset Cash Decrease
c. Cash purchases from Ali RM500
Purchases Expense Increase
Asset Motor Vehicle Increase
Purchase motor van using loan from
d. Liability Loan From BMF Finance
BMF Finance RM15,000
Increase
Asset Debtors Increase
e. Credit sales to Hasan RM2,000
Sales Revenue Increase
Asset Cash Increase
f. Cash sales to Mutu RM250
Sales Revenue Increase
Asset Cash Decrease
g. Goods returned by Mutu RM20
Sales Revenue Decrease
The owner took goods for his own Purchases Expense Decrease
h.
use RM100 Capital Decrease
The owner took cash for his own use Asset Cash Decrease
i.
RM200 Capital Decrease
Goods returned to Amirul Sdn. Bhd. Purchases Expense Decrease
j.
RM100 Liability Creditors Decrease
Paid Amirul Sdn. Bhd. by cheque Asset Bank Decrease
k.
RM900 Liability Creditors Decrease
Asset Debtors Decrease
l. Goods returned by Hasan RM50
Sales Revenue Decrease
Asset Bank Increase
m. Hasan paid by cheque RM1,950
Asset Debtors Decrease
Bought computer by cheque Asset Bank Decrease
n.
RM2,500 Asset Computer Increase
The owner brought in his furniture Asset Furniture Increase
o.
RM1,200 Capital Increase

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3.

DATE TRANSACTIONS A/C TYPE EFFECT

01 Encik Fuad invested RM50,000 of Bank A

his money to the business and Capital OE
deposited the money into the
business bank account.
03 Purchased goods from Osman Purchases E
Trading cost RM3,700 on credit. A/P-Osman L
Trading
06 Bought second hand delivery van Delivery van A
at a cost of RM30,000 from Bank A
Bahagia Otomobil and paid a Bahagia Otomobil L
down payment of RM10,000 by
cheque, the remainder to be paid
by monthly installment.
10 Sold goods on credit to Ramli Sales R
RM1,250. A/R-Ramli A
13 Encik Fuad withdrawn money Drawings OE
from bank RM500 and took goods Bank A
worth RM150 both for his Purchases E
personal use.
18 Issued cheque to Osman Trading Bank A
RM2,500. A/P-Osman L
Trading
20 Ramli returned defected goods Return inwards R
amount RM250. A/R-Ramli A
25 Received cheque from Affin Bank Bank A
RM20,000 for loan. Loan from Affin L
Bank
29 Ramli paid for the amount owes Bank A
after deducting goods returned by A/R-Ramli A
cheque.