Wiley Not-for-Profit GAAP 2014: Interpretation and Application of Generally Accepted Accounting Principles

20 INVENTORY

Perspective and Issues

Concepts, Rules, and Examples

Valuation of Inventories

Full Absorption Costing

Direct Costing

Specific Identification

Cost Flow Assumptions

First-In, First-Out (FIFO)

Last-In, First-Out (LIFO)

Lower of cost or market (LCM)

Donated Inventories

Interim Financial Statements

Inventory Values in Business Combinations

Disclosure Requirements

PERSPECTIVE AND ISSUES

Accounting for inventories is not usually as critical an area for not-for-profit organizations as it is for commercial enterprises. Not-for-profit organizations might have inventories that consist of donated supplies, materials, publications, and other items used in the organization's activities or programs or held for resale to the public. They may also have inventories that they use to produce products for sale, similar to a commercial enterprise. Many not-for-profit organizations use “commercial-like” activities to supplement their fundraising or other revenue streams. For example, a museum is likely to operate a gift shop. A university is likely to operate a bookstore. Other not-for-profit organizations employ people with disabilities to actually manufacture goods for sale. Similar to a commercial enterprise, inventory should be recorded at cost, which should include all direct and indirect costs incurred to prepare it for sale or use.

Not-for-profit organizations may acquire merchandise inventory for resale. Examples include items held for sale by a bookstore, dining service, kitchen, ...