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U.S. GAAP Codification Accounting Topics

Accounting for Inventories

Accounting for Inventories


      Accounting Research Bulletin (ARB) No. 43, Chapter 4, June 1953 


Inventory Recording System

      Perpetual Inventory System 

      Periodic Inventory System


Inventory Valuation Methods

      First-in First-out (FIFO)
      Last-in First-out (LIFO)
      Moving Average Method
      Weighted Average Method
      Dollar Value LIFO

Lower of Cost or Market (LCM)

      Inventories are valued at cost or market, whichever is lower
      [ARB No. 43, Chapter 4, Para. 8


Market Value of Inventories [ARB No. 43, Chapter 4, Para. 9]

      Market value = Current replacement cost 

      Upper limit (Ceiling) of Market value = Net Realizable Value (NRV)

      Lower limit (Floor) of Market value 
      = Net Realizable Value (NRV) - Normal Profit Margin

      Net Realizable Value (NRV)
      = Estimated Selling Price - Cost of Completion and Disposal


Items to be included in inventories

      Goods in transit 
      FOB destination --> Seller's Inventory
      FOB shipping point --> Buyer's Inventory

      Consigned goods are consignor's inventory 

      Goods sold by installment sales are not included in seller's inventory.
      Profit on installment sales is recognized in proportion to cash collected.

Examples of Inventory Valuation

Journal entries for perpetual and periodic inventory systems

Examples of FIFO, LIFO, Average methods

Examples of Dollar Value LIFO

Examples of Lower of Cost or Market (LCM)

Principles of Accounting Course: Key Topics
Accounting Journal Entry Examples
Accounting Equation - Review and Examples
Double Entry Recording of Accounting Transactions
Debit Accounts
Credit Accounts
Asset Accounts
Liability Accounts
Equity Accounts
Revenue Accounts
Expense Accounts

U.S. GAAP by Topic
Accounting Topics
Inventory Valuation Methods
Depreciation Methods
Revenue Recognition Principle
Accrual Basis vs. Cash Basis Accounting
Basics of Journal Entries
Ratios for Financial Statement Analysis
Overview of Financial Statements

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