Why do we add closing creditors and deduct opening creditors while calculating the cost of goods consumed?
Why do we add closing creditors and deduct opening creditors while calculating the cost of goods consumed?
Opening creditors+New creditors-closing Creditor = cost of goods consumed.
this can also be depicted as:
Opening Inventory+New Purchases- closing Inventory= cost of goods consumed.
you used creditors because all suppliers are called creditors and creditors are recorded by their names, date and amount of purchases. Your doing Creditor analysis and I did balance sheet analysis. For your curriculum, it is fine to use creditors, in real business, payments will be made and no creditors left. During that time, we will get inaccurate measurement. Pls contact me if u have any further doubts.
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