Wiley GAAP 2019

23ASC 330 INVENTORY

PERSPECTIVE AND ISSUES

Subtopic

ASC 330, Inventory, consists of one subtopic:

• ASC 330-10, Overall, that provides guidance on the accounting and reporting practices on inventory.

ASC 330, Inventory, discusses the definition, valuation, and classification of inventory.

Scope

ASC 330 applies to all entities but is not necessarily applicable to:

• Not-for-profit entities
• Regulated utilities

• (ASC 330-10-15-2 and 15-3)

Overview

Issues.

The accounting for inventories is a major consideration for many entities because of its significance to both the income statement (cost of goods sold) and the statement of financial position (current assets).

The complexity of accounting for inventories arises from factors that include:

• The high volume of activity (or turnover) and the associated challenges of keeping accurate, up-to-date records.
• Choosing from among various cost flow alternatives that are permitted by GAAP.
• Ensuring compliance with complex U.S. income tax laws and regulations when electing to use the last-in, first-out (LIFO) method.
• Monitoring and properly accounting for adjustments necessitated by the decline in inventory value.

Classification.

There are two types of entities for which the accounting for inventories is relevant:

1. Merchandising
2. Manufacturing

The merchandising entity normally purchases ready-to-use inventory for resale to its customers, and only one inventory account is needed.

Manufacturers, on the other hand, may have raw goods, ...