Question

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

Answer 1

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

Answer:

Inventories can be classified into three types as follows : 1. Finished Goods - Inventory which is available for ready to sale to customers, 2. Work - in - Progress - Inventory which which has been introduced into production but production is yet to be completed for being ready to sale, 3. Raw Materials - Inventory which is used to produce finished goods with some machine or man power for selling by the entity.

For Determining Inventory quantities There are two processes : 1. Counting of Physical Inventory in hand & 2. Counting of inventory which are in transit of which title belongs to us.

Accounting for inventories will be at cost only always. Cost of goods available for sale includes begining stock in hand and purchases during the year and reducing the cost of goods sold during the year.

The inventory cost flow methods are specific identification method - in which the company identifies what units are sold and which still are in ending inventory and some assumption methods are FIFO - assumes that first purchased goods are the first to be sold, LIFO - assumes that last purchased goods are the first to be sold and lastly the Average Method - assumes that the goods are all equal and allocates the cost of goods on the basis of weighted average cost per unit.