Textile Costing

Lecture 3
Current Assets & Liabilities
Debtors & Creditors, Deferrals & Accruals, Valuation of inventories, Impact of inventory valuation on P&L

 Debtors – Trade debtors or accounts receivable (open account sales basis – not evidenced by written promise
to pay), Bills receivable (written evidence of debt), Advances and deposits with suppliers, short term loans to
employees etc. Long term loans to associated organizations (classified as investments). {PROPERTY}
 Creditors – Trade creditors or account payable, Bills payable, Deposits or advances from customers, Loans
from banks or associated organizations. {RIGHT TO PROPERTY}
 Deferral – postponement of the recognition of an expense already paid, the benefit of which is not received
during the period but will benefit the next period; or of an income already received, which is not related to the period
and is still unearned. Deferred expenses: assets, Deferred incomes: liabilities.
 Accrual – an expense or an income that has gradually accumulated. Accrued
expenses: liabilities, Accrued incomes: assets.
Journal
Date   Description Debit Credit
xxxx        
Jan 1 Prepaid Rent 600  
    Cash   600
    Paid rent for 1 year in advance    
         
  31 Rent Expense 50  
    Prepaid Rent   50
         

Cash
Ja
Jan 1 Balance b/d 2,100 n 1 Prepaid Rent 600
  31 Balance c/d 1,500
2,100   2,100
Feb 1 Balance b/d 1,500  

Rent Expense
Jan 31 Prepaid Rent 50  
 

Prepaid Rent
Ja
Jan 1 Cash 600 n 31 Rent Expense 50
  31 Balance c/d 550
600   600
Feb 1 Balance b/d 550  

 Cost of Goods Sold:

Example:
Cost of Goods Sold

Opening balance of supplies 10,000

Purchases during the period 40,000
Value of goods available for sale 50,000

Closing balance of supplies 13,000

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 Textile Costing

Cost of goods sold 37,000

 Cost of inventory impacts P&L

Inventory stated at Rs 20,000

Profit & Loss Balance Sheet

Net sales 300,000 Goods inventory 20,000
Cost of goods sold 120,000 Other assets 200,000
180,000 Total 220,000
Liabilities 30,000
Expenses 40,000 Capital 190,000
Net Profit 140,000 220,000

Inventory stated at Rs 10,000

Profit & Loss Balance Sheet

Net sales 300,000 Goods inventory 10,000
Cost of goods sold 130,000 Other assets 200,000
170,000 Total 210,000
Liabilities 30,000
Expenses 40,000 Capital 180,000
Net Profit 130,000 210,000

Inventory stated at Rs 30,000

Profit & Loss Balance Sheet

Net sales 300,000 Goods inventory 30,000
Cost of goods sold 110,000 Other assets 200,000
190,000 Total 230,000
Liabilities 30,000
Expenses 40,000 Capital 200,000
Net Profit 150,000 230,000
 FIFO – merchandise sold in order of purchase (for instance perishable items) – inventory remaining composed
of the most recent purchases.
 LIFO – merchandise sold in reverse order of purchase (in harmony with inflation) – inventory remaining
composed of earlier purchases.

1-Jan Inventory 300 units at Rs 6.00 Rs 1,800

10-Feb Purchases 300 units at 7.00 2,100
2-Oct Purchases 300 units at 8.00 2,400
20-Dec Purchases 100 units at 9.00 900

Goods available for sale during the year 1,000 7,200

Physical Count on 31st December 300 units

FIFO   100 units at 9.00 900

  200 units at 8.00 1,600
   

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 Textile Costing

  300 2,500
   
  COGS 4,700
           

LIFO   300 units at 6.00 1,800

   
  300 1,800
   
  COGS 5,400
           

LIFO   300 units at 7.20 2,160

   
  300 2,160
   
  COGS 5,040
           

 Inventories are always valued at lower of cost or net realizable value.

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