Accountants' Handbook, Volume One, Financial Accounting and General Topics, 12th Edition

Chapter 13

Inventory

Richard R. Jones, CPA

Ernst & Young LLP

Anna T. Szurgot, CPA

Ernst & Young LLP

13.1 Overview

13.2 Essential Inventory Concepts

(a) Inventory as an Asset

(b) Definition of Inventory

(c) Objectives of Accounting for Inventory

13.3 Types of Inventory

(a) Retail/Wholesale

(b) Manufacturing

(i) Raw Materials

(ii) Work in Process

(iii) Finished Goods

(iv) Supplies

(c) Consignment

(d) Trade-In

(e) Repossessed

(f) Contract Production

(g) Products Maturing in More Than One Year

(h) Spare Parts

(i) Miscellaneous

13.4 Determining Physical Quantities

(a) Introduction

(b) Periodic System

(i) Physical Count Procedures

(ii) Cutoff

(c) Perpetual System

(i) Recordkeeping Procedures

(ii) Cutoff

(d) Procedures to Control Inventory Quantities

13.5 Valuation Methods

(a) Cost

(i) Job-Order Costing

(ii) Process Costing

(iii) Direct Material Component

(iv) Direct Labor Component

(v) Overhead Component

(vi) Overhead Allocation

(b) Lower of Cost or Market

(i) LIFO Considerations

(c) Retail Method

(d) Above Cost

(e) Replacement Cost

(f) Net Realizable Value

(g) Gross Margin Method

(h) In Connection with a Purchase Business Combination

(i) Control Procedures to Help Achieve a Proper Inventory Valuation

13.6 Flow of Costs

(a) Introduction

(b) First-In, First-Out

(c) Last-In, First-Out

(i) Specific Goods Method

(ii) Dollar-Value Method

(iii) Double-Extension Technique

(iv) Link-Chain Technique

(v) Retail LIFO Method

(vi) Valuing the Current-Year Layer

(vii) New Items

(viii) Other LIFO Matters ...