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+--- Thread: Purchase Return Exceed Inventory Value (/thread-purchase-return-exceed-inventory-value)
Purchase Return Exceed Inventory Value - ahmadnb - 08-24-2011
Hi , using perpetual accounting
Could anyone tell how to solve this problem
assume a company make the following transaction
1-1-2010
purchase 1 item @ 100 $ (cash)
1-6-2010
purchase 10 item @ 10$ (cash)
1-9-2010
sale 10 item @ 30$ (cash)
Now ending inventory using (average weight method) will be 1 item @ 18.18
if we make the following transaction
1-1-2011
purchase return 1 item @ 100$ (cash)
this well make inventory has credit value (18.8 - 100) = -81.82 which can't be right !!
how should i record this
should i add the difference as other revenue, or credit the cost of good sold ?
Thank You
- Dard - 09-04-2011
The scenario is very unrealistic. Prices of same items can not differentiate that much in a matter of weeks. One item was bought at $100 and just after five months the same item was brought at the rate of $1! The major difference will definitely result in a negative inventory value if the more expensive item is returned later.
- kashif_mukhtar11 - 09-07-2011
[quote]<i>Originally posted by Dard</i>
<br />The scenario is very unrealistic. Prices of same items can not differentiate that much in a matter of weeks. One item was bought at $100 and just after five months the same item was brought at the rate of $1! The major difference will definitely result in a negative inventory value if the more expensive item is returned later.
[Simply cost of goods sold would be reduced automatically(iecredited).Trading profit or loss would be treated in cost of goods sold section not in other income.Thanks /quote]