Question

Question 1. Compare and contrast Journal with Ledger with their respective formats.

Question 2. What is Inventory? Discuss the four methods of inventory valuation with suitable example.

Question 3. What do you mean by a Trial Balance? How is it prepared?

Question 4. Compare FIFO with LIFO with suitable examples.

.

Note: Plagiarism is strictly prohibited please do not copy from internet

Answer 1

1.

Basis	Journal	Ledger
1. Step	Journal is the first step in accounting process	Ledger Is the second step
2. Meaning	It records transactions when they arise	It records the transactions into individual accounts after they have been posted into journals
3. Narration	Narrations are must after each journal entry	Narration and not required.
4. Posting	These are posted to Ledgers	These are posted to Trial Balance
5. Format	There are debit and credit columns.	T Format is used with left side being debit and right side being credit.
6. Recording	Transactions are journalized	Transactions are Posted.

Journal
Date	Particulars	Debit	Credit
01-Jan	Cash A/c	XXX
	To XYZ		XXX
	(Being Cash Received from XYZ Debtor)

Ledger
Cash A/c
Particulars	Dr.	Particulars	Cr.
To XYZ	XXX
		By Balance c/f	XXX
	XXX		XXX
XYZ
Particulars	Dr.	Particulars	Cr.
		By Cash	XXX
To Balance C/f	XXX
	XXX		XXX

2. Inventory is the balance of unsold stock left at the end of a accounting term. For eg- If the Produced stock was 1000 units and 800 out of them were sold. Inventory at the end will be 200 units.

Four methods of Inventory Valuation are:

* Specific Identification - It is valuing of the inventory units at actual Costs. All units are identified with their costs at which they were purchased or produced. For example: 10 units were there in inventory @ $2 per unit and 50 units were purchased @$2.5 per unit. 40 units were sold which costed $2.5 per unit. Inventory will be 10 units @$2 per unit plus 10 units@$2.5 per unit.

* FIFO (First in First Out) - It is valuing inventory at the cost of units that were purchased last. Here units are sold according to the date. Units purchased first are sold first. For example: 10 units were there in inventory @ $2 per unit and 50 units were purchased @$2.5 per unit. 40 units were sold. 10 units will be sold of $2 per unit and 30 units will be sold @$2.5 per unit. Inventory will be 20 units @$2.5 per unit.

* LIFO (Last in First Out) - It is valuing inventory at the cost of units that were purchased first. Here units are sold according to the date. Units purchased last are sold first. For example: 10 units were there in inventory @ $2 per unit and 50 units were purchased @$2.5 per unit. 40 units were sold. 40 units will be sold of $2.5 per unit. Inventory will be 10 units @$2 per unit and 10 units @$2.5 per unit.

* Weighted Average - It is valuing inventory at the average costs. Here units are sold according to the average of all the unit prices multiplied with their units. For example: 10 units were there in inventory @ $2 per unit and 50 units were purchased @$2.5 per unit. 40 units were sold. 40 units will be sold at average price. Average price = (10*2 + 50*2.5) / 10+50 = $2.417per unit. Inventory will be 20 units @$2.417 per unit.

3. Trial Balance is a worksheet of the balances of all the ledger accounts. All the ledger account balances are posted to trial balance in debit or credit side. This is the third step in accounting and comes before the final step of prepration of financial accounts. Both the debit and credit side match each other. All the debit balances i.e the assets are posted to debit of trial balance and all the credit balances are posted to credit of trial balances.

4.

* FIFO (First in First Out) - It is valuing inventory at the cost of units that were purchased last. Here units are sold according to the date. Units purchased first are sold first. For example: 10 units were there in inventory @ $2 per unit and 50 units were purchased @$2.5 per unit. 40 units were sold. 10 units will be sold of $2 per unit and 30 units will be sold @$2.5 per unit. Inventory will be 20 units @$2.5 per unit.

* LIFO (Last in First Out) - It is valuing inventory at the cost of units that were purchased first. Here units are sold according to the date. Units purchased last are sold first. For example: 10 units were there in inventory @ $2 per unit and 50 units were purchased @$2.5 per unit. 40 units were sold. 40 units will be sold of $2.5 per unit. Inventory will be 10 units @$2 per unit and 10 units @$2.5 per unit.