Question

What are inventoriable costs? Why are they important?

What are non-inventoriable costs?

What is an expenditure? When is it used in the inventory process?

What is a loss? When is it used in the inventory process?

What is the key difference between the periodic and perpetual methods of updating inventory?

Answer 1

Inventoriable costs are the costs to goods purchased or manufacture which will be resold, and the costs to get those products in place and ready for sale. Inventoriable costs are also known as product costs. Before the products are sold, these costs are recorded in inventory accounts on the balance sheet and are treated like assets.

Non-Inventoriable costs are those costs which are charged directly to income statement instead of being charged to inventories.

When accounting for materials & supplies inventory, it is good to keep two things mind: In the consumption method, the expenditures account reports the amount of supplies used – that is why changes in inventory level are charged to that account. In the purchases method, the expenditures account reports the amount of supplies purchased – that is why changes in inventory are charged to OFS (increases) and (OFU) decreases.

Inventory loss may occur due to theft, damage, or other reasons. When a loss occurs, the company must adjust its accounting records to accurately reflect the new inventory balance.