Is cost of goods sold equal to adjusted purchases and Why?
How should we show them in trial balance ?
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Cost of Goods Sold = Opening Stock + Net Purchases + Direct Expenses - Closing Stock
Adjusted Purchases = Opening Stock + Net Purchases - Closing Stock
Conclusion: From above, we can easily say that both of them are not same. In calculating cost of goods sold, we consider an additional item i.e. the direct expenses. This is because cost of goods sold refers to all the cost incurred in manufacturing (adjusted purchases + direct expenses), whereas adjusted purchases shows the amount spent in respect of stock only.
Disclosure of COGS and Adjusted Purchases in Trial Balance
(i) When COGS, Opening Stock, Closing Stock, Purchases and Direct Expenses are given: Only show COGS and Closing Stock in Trial Balance with amounts in debit column
(ii) When Adjusted Purchases, Opening Stock and Closing Stock are given: Only show Adjusted Purchases and Closing Stock in Trial Balance with amounts in debit column
(iii) When Purchases, Opening Stock and Closing Stock are given: Only show Purchases and Opening Stock in Trial Balance with amounts in debit column
Conclusion:
(1) If COGS/Adjusted Purchases are given, then Closing Stock is shown in the Trial Balance
(2) If Purchases are given, then Closing Stock never appears in Trial Balance
Adjusted Purchases = Opening Stock + Net Purchases - Closing Stock
Conclusion: From above, we can easily say that both of them are not same. In calculating cost of goods sold, we consider an additional item i.e. the direct expenses. This is because cost of goods sold refers to all the cost incurred in manufacturing (adjusted purchases + direct expenses), whereas adjusted purchases shows the amount spent in respect of stock only.
Disclosure of COGS and Adjusted Purchases in Trial Balance
(i) When COGS, Opening Stock, Closing Stock, Purchases and Direct Expenses are given: Only show COGS and Closing Stock in Trial Balance with amounts in debit column
(ii) When Adjusted Purchases, Opening Stock and Closing Stock are given: Only show Adjusted Purchases and Closing Stock in Trial Balance with amounts in debit column
(iii) When Purchases, Opening Stock and Closing Stock are given: Only show Purchases and Opening Stock in Trial Balance with amounts in debit column
Conclusion:
(1) If COGS/Adjusted Purchases are given, then Closing Stock is shown in the Trial Balance
(2) If Purchases are given, then Closing Stock never appears in Trial Balance
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