Inventory Systems And The Inventory System

1254 Words May 26th, 2016 6 Pages
Merchandise Inventory
Merchandise Inventory has two types of Inventory systems, Perpetual and Periodic. The perpetual inventory system is based on a running total of units as well as using point-of-sales (POS) registers and scanner (Price, Haddock, & Farina, 2015). The perpetual inventory system on the other hand is based on a periodic count of goods that are on hand, requires that a physical count of the inventory be performed when creating the financial statements of a company. There are also different methods that are used when assigning costs to products, these are: Specific Identification Method, Average Cost Method, FIFO Method (First In-First Out), and LIFO Method (Last In-First Out). When getting ready to choose a method it is important for the company to make sure that the chosen method is the correct one for them. Depending on the company it could be that there is more than one method that is put into place (should be avoided) but combined when recorded in their financial statements. Although for Tax purposes the company can generally only use one method.
Another thing that a company should consider is to compute the value of their inventory. For this they may choose to use the lower of cost or the market rule. There are three ways that one can apply the lower of cost or the market rule: by item, in total, or by group (Price, Haddock, & Farina, 2015). Once a company has chosen a rule they should stick with that to avoid confusion on their financial records. Then…

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