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Inventories- Part 2 http://www.youtube.com/watch?feature=player_embedded&v=Halm3pqRHzM
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. In other words The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets 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 represents one of the most important assets that most businesses possess, because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company's shareholders/owners. Lecture Notes There are two systems of recording inventory:
2. Perpetual Periodic inventory is a system of inventory in which updates are made on a periodic basis In a periodic inventory system no effort is made to keep up-to-date records of either the inventory or the cost of goods sold. Instead, these amounts are determined only periodically usually at the end of each year. This physical count determines the amount of inventory appearing in the balance sheet. perpetual inventory or continuous inventory describes systems of inventory where information on inventory quantity and availability is updated on a continuous basis this is a system for inventory that records the sale or purchase of inventory in near real-time. Perpetual inventory provides a highly detailed view of changes in inventory and allows real-time reporting of the amount of inventory in stock
There are three main inventory valuation methods under perpetual system:
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