Inventory Accounting

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DEFINITION of 'Inventory Accounting'

The body of accounting that deals with valuing and accounting for changes in inventoried assets. Changes in value can occur for a number of reasons including depreciation, deterioration, obsolescence, change in customer taste, increased demand, decreased market supply and so on.

INVESTOPEDIA EXPLAINS 'Inventory Accounting'

It is a requirement of GAAP that inventory be properly accounted for according to a very particular set of standards, so as to limit the potential of overstating profit by understating inventory value, and to limit the potential to overstate a company's value by overstating the value of inventory which has in fact materially depreciated in value.

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RELATED FAQS
  1. What is the difference between work in progress (WIP) and finished goods in accounting?

    Work in progress (WIP) and finished goods are broad classification terms used in accounting for inventory to specify the ... Read Full Answer >>
  2. What are the generally accepted accounting principles for inventory reserves?

    As with most matters related to generally accepted accounting principles (GAAP), accountants assigned with the task of applying ... Read Full Answer >>
  3. How are contingent liabilities reflected on a balance sheet

    Contingent liabilities need to pass two thresholds before they can be reported in the financial statements. First, it must ... Read Full Answer >>
  4. How do businesses determine if an asset may be impaired?

    In the United States, assets are considered impaired when net carrying value (book value) exceeds expected future cash flows. ... Read Full Answer >>
  5. How can I set up an accrual accounting system for a small business?

    First, determine whether accrual accounting makes the most sense practically and financially. If the small business is also ... Read Full Answer >>
  6. Why is work in progress (WIP) considered a current asset in accounting?

    Accountants consider work in progress (WIP) to be a current asset because it is a type of inventory asset. Accountants consider ... Read Full Answer >>
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