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Inventories Part 1 Notes

Accounting Notes > Accounting (Special Edition) Notes

This is an extract of our Inventories Part 1 document, which we sell as part of our Accounting (Special Edition) Notes collection written by the top tier of Acca students.

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Inventories - Part 1 http://www.youtube.com/watch?feature=player_embedded&v=XxBH9uZdgro

Definition Inventories mean goods and stocks which are purchased or produced for the purpose of resale. it is one of the organization's most important current assets. Inventory cost is the net invoice price (less discounts) plus any freight and transit insurance plus taxes and tariffs. In other words The raw materials, partly finished goods and completely finished goods of a business are known as inventories. Inventory consists of:

* goods purchased for resale

* consumable stores (such as oil)

* raw materials and components (used in the production process)

* semi finished goods (usually called work in progress - WIP)

* finished goods (manufactured by the business). Why is it important?
Inventory is a current asset on your company's balance sheet. More important, it is a major part of your ongoing business operations. Inventory is necessary for a business to earn revenues and make profits. Lecture Notes Capitalisation vs expenses There are many cost related to inventories, some of them will be capitalized and the others will be charged as a periodic expense

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Following cost will be capitalized as a current asset (inventory) in the balance sheet Purchase price of inventory Conversion cost fixed production overheads (allocated on appropriate basis) Any other cost necessary to bring inventory into its present condition and location.

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Following cost will be treated as a periodic expense in the income statement. Non production overheads abnormal losses such as wastages, accidents storage costs selling and distribution costs

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