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 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 >>
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