Question

1. (2) You are required to conduct research (i. e. reviewing relevant accounting standards and policies as well as academic and professional journals), and discuss regulatory requirements and various factors that accountants should consider when setting up accounting policy relating to inventory for the entities they work for?

Answer 1

So firstly we need to know what is accounting policies, so accounting policies are policies and procedures which are implemented by the company and their management team that are used for recording every transaction and to prepare financial statements. Accounting policies are used as a standards for the company to prepare financial statement. They help in accounting practices like in method of depriciation, recognition of goodwill, preparation of research and development, inventory valuation and in consolidatiom of financial accounts. The policies of every company can be different.

According to the question accounting policies relating to inventory is like, companies are allowed to value inventory using the average cost, first in first out, or last in first out methods of accounting. Under the average, when a company sells a product , the weighted average cost of all inventory produced or acquired in the cost of goods sold (COGS).

So accounting policies related to inventory needs to be proper for understanding of the information provided in the financial statements. An accountant needs to be like that who can clearly state the accounting policies related to inventory for the understanding of which method to use for inventory calculation. So the disclosure of accounting policies is important because many accounting standards allow alternative treatments for a same transaction or item.