How Inventory Related Costs Can Affect An Organization 's Profit And Loss Statement

As focusing on each of the five management assertions for the inventory account, we discovered that there are some risky areas that indicate the need for further attention during the audit. First of all, for existence or occurrence, all items in the inventory account must physically exist and be available for sale. Thus, the auditors should physically count finished goods, copper rod, and plastic inventories, and determine actual increase of inventories at year end. Also, they should select items from the inventory ledger and locate them and reconcile the quantity. Second, for completeness, the auditors should make sure that all existing inventories have been recorded completely , go around the warehouse and ensure all the inventories are recorded in the inventory ledger. Third, for valuation or allocation, the auditors should make sure that Laramie Wire manufacturing sticks with one valuation method(For inventory items, valuation is based on the lower of cost or market value, with several alternative methods for calculating cost), find out if there is any scrap inventory that needs to be recorded and written off ,and ask about obsolescence items. Fourth, for rights and obligations, the auditor should ask them if there is any consigned inventory at their warehouse. If there is, those inventories should not be recorded in the company's inventory ledger. Finally, for presentation and disclosure, the auditors should review the company's financial

330-10-30330-10-30-1 The primary basis of accounting for inventories is cost, which has been defined generally as the price paid or consideration given to acquire an asset. As applied to inventories, cost means in principle the sum of the applicable expenditures and charges directly or indirectly incurred in bringing an article to its existing condition and location. It is understood to mean acquisition and production cost, and its determination involves many considerations. 330-10-30330-10-30-2 Although principles for the determination of inventory costs may be easily stated, their application, particularly to such inventory items as work in process and finished goods, is difficult because of the variety of considerations in the allocation of costs and charges.

In addition, what is the impact on the financial statements if the ending finished goods inventory is overstated or understated?

The calculations required for question 1 are not massive (it takes more thinking than pencil‐pushing). Working those calculations will help solidify your understanding of the relationship between inventory and cost of goods sold in a manufacturing company. You’ll know you’re on the right track if you conclude that the answer to part b(3) is “no effect.”

6. 7. 8. Cost-flow assumption for inventory Base LIFO layer liquidations Loss recognitions on write-downs of inventories

The paperwork is needed so that the inventory can be check and figured out the true value of the inventory. A better way at looking any logical justification for cost or market inventory valuation is that a stock of items is necessary to expedite production and sales. If inventory become obsolescence, goes through physical deterioration, and price declines occur, or even if the stock when finally utilized cannot be expected to realize its stated cost plus a normal profit margin. Reduction in inventory value is an additional cost of the goods produced and sold during the time that they decline value occurred

The Board is currently proposing a new simplified guidance on the measurement of inventory. The Board suggests that inventory should be measured at the lower of cost and net realizable value, eliminating the old guidance of measuring inventories. The Board defined net realizable value in ASC paragraph 330-10-20 as “Estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” The new guidance should help companies to disclose the measurement of inventory more concisely and reduce the cost to account for them. In addition to that proposal, the Board are also aligning with the measurement of inventory with International Financial Reporting Standard. According to IFRS No. 2, inventories are required to be measured at the lower of cost and net realizable value. IAS No. 2 defined net realizable value as “the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.” This definition is aligning with the definition under

For a company the size of Smitheford Pharmaceutical inventory cost can be a large portion of the inventory value on hand. Inventory cost also known as ordering cost or carrying cost can be defined as the cost a company obtain to tore and maintain inventory over a certain time period ("Carrying

The effect of writing off the inventory for the year’s income is one that has a drastic effect on the balance sheet according to Porter and Norton (2013) because, it determines the amount eventually recognized as an expense on the income statement. An error in assigning the proper amount to inventory on the balance sheet will affect the amount recognized as cost of goods sold on the income statement. (Using Financial Accounting Information: The Alternative to Debits and Credits, 9th Edition, section 5-6, para 2)

The inventory account has the greatest risk due to the numerous business and economic factors the affect AEO’s industry. As a specialty retailer, AEO must continue to maintain it’s competitive advantage in terms of forecasting customer trend preferences or risk producing out of date product styles that will lead to excess inventory.

1.0 INTRODUCTION The statutory mandate in U.S. tax law that firms using the last-in first-out (LIFO) inventory costing method for tax purposes must also use LIFO for financial reporting purposes makes inventory accounting an especially interesting research and teaching topic. The constraint on managerial discretion imposed by tax--book conformity

Inventory management has two very different, but effective methods: Vendor managed inventory, and consignment inventory. A company may choose to utilize either of these two methods to manage inventory. If a company is able to manage inventory, they will be better able to work the company's capital to the fullest extent. The following paper will identify the differences between the two as well as identify what type of company is best suited for each method.

Managing what's in a warehouse or on the shop floor can be extremely complex if you're looking for optimal cost and supply chain management capabilities( Needleman, 2017 ). Inventory estimation and control is directly impacted a company’s profitability.

The two most common methods of inventory costing are Last-in-first-out (LIFO), and first-in-first-out (FIFO), choosing the correct method of inventory accounting could be detrimental to the income statement and the statement of cash flow, and also it would affect the balance sheet of the company. For Johnson & Johnson, it is

A RESEARCH PROPOSAL SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF A DEGREE IN BUSINESS MANAGEMENT AT MASINDE MULIRO UNIVERSITY OF SCIENCE AND TECHNOLOGY