Purchased Inventory by rmr15625

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Purchased Inventory document sample

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									    Inventory
Valuation and Control
              Inventory
Inventories are business assets.

Failure to keep accurate inventory records
can lead to loss of profits and assets!
                Inventory
• Uses of inventory records
  – Balance sheet preparation
  – Compute accrual net income
  – Validate insurance claims
• Alternative types of firms
  – Retail
  – Manufacturing/Farming
                  Inventory
• Categories of inventory (mfrs/farms)
  – Materials
  – Work in process
  – Finished goods
• Other assets that impact the balance sheet
  – Supplies
  – Breeding stock
  – Equip., real estate
                   Inventory
• Materials & supplies
  – Used up and later replaced
     • Generally applies to crop production
  – Replenished before being used up
     • Livestock feeding
     • Dairy production
                         Inventory
• Methods
  – Perpetual
      • Inventory subsidiary ledger is updated after each transaction
      • Inventory quantities are updated continuously.
  – Periodic
      • Purchases account is updated continuously
      • Inventory account is updated on a periodic basis, at the end
         of each accounting period
  http://accountinginfo.com/study/inventory/inventory-110.htm
                    Inventory
• Control & valuation
  – Perpetual LIFO
  – Perpetual FIFO
  – Periodic
     • Count, measure, or weigh
     • Determine value/cost per unit
                  Inventory
• FFSC recommendations
  – Inventories of harvested crops and raised
    livestock held for sale: valuation should be at
    market value less the cost of disposal.
                  Inventory
• FFSC recommendations
  – Inventories of raised/harvested item to be used
    in the production process: market valuation is
    acceptable but not preferred to the lower of cost
    or market
                 Inventory
• FFSC recommendations
  – Inventories (such as feeder livestock, crops,
    etc.) that are purchased with the intention of
    being resold in the same general form: market
    valuation is acceptable but not preferred to
    valuation using the lower of cost or market
                 Inventory
• FFSC recommendations
  – Inventories purchased for use in the production
    process: valued at cost
                  Inventory
• FFSC recommendations
  – Producers should disclose the inventory
    valuation practices and follow those valuation
    practices consistently from one year to the next
  – A conservative valuation method should be
    used for valuing any inventory items that will
    be consumed in the next business cycle.

								
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