Question

Describe the steps in determining inventory quantities and explain the accounting for inventories and apply the inventory cost flow methods.

Answer 1

steps in determining inventory:
there are two steps in determining inventory
1) to take the physical inventory of goods
2) to determine the owner of goods on consignment or in transit . to check whether the goods in inventory belong to company or any goods are included which does not belong to company .
inventory should be recorded at cost or net realisable value (nrv) which ever is lower.

four basic cost flow methods for inventory valuation :

1) first in first out (FIFO):
under this method the inventory ourchased first are the one to be sold first.the closing inventory is valued at the latest price of units purchased last

2) last in first out (LIFO):
Under this method the inventory purchased last are the inventory to be sold first and the closing inventory is valued at oldest price

3)secific identification metod :
this method is used when the inventory purchased and sold are easily identifiable

4)averge cost method:
in this method inventory is at average price , which is calculated by division of total cost of goods in inventory by the total units in inventory