- Income Statement
- Formats of Income Statements
- Principles of Revenue Recognition
- Revenue Recognition - Long-term Contracts
- Revenue Recognition - Instalment Sales
- Revenue Recognition - Barter Transactions
- Expense Recognition
- Inventory Expense Recognition
- Depreciation Expense Recognition
- Amortization Expense Recognition
- Bad Debt Expense and Warranty Expense Recognition
- Financial Reporting of Non-recurring Items
- Operating and Non-operating Components of Income Statement
- How to Calculate Basic Earnings Per Share (EPS)
- Impact of Stock Dividends and Stock Splits on Earnings Per Share (EPS)
- Diluted EPS
- Calculation of Diluted EPS (Convertible Preferred Stock)
- Calculation of Diluted EPS (Convertible Debt)
- Common Size Income Statement
- Performance Measures of a Company
- Comprehensive Income
Inventory Expense Recognition
Inventory refers to the short-term assets on a company’s balance sheet; example – a retail clothier’s stock of shirts, pants, etc.
The expense for inventory is a part of the cost of goods sold. The flow of inventory costs into the accounting system is determined based on the inventory accounting policy, not the physical flow of goods.
The commonly used methods are:
- Specific cost identification
- First-in, first-out (FIFO)
- Last-in, first-out (LIFO)
- Average cost
Specific Cost Identification
This method is used when the company can identify exactly which items were sold and which ones are still in the inventory. For example, a laptop dealer sells his inventory of laptops based on their serial number.
First-in, first-out accounting method, where the costs of the oldest items in inventory are used to compute the cost of goods sold (COGS) expense on a company’s income statement.
FIFO ending inventory for the balance sheet is calculated based on values of the most recent inventory goods purchased.
This content is for paid members only.
Join our membership for lifelong unlimited access to all our data science learning content and resources.