Inventory

Inventory includes tangible property that

i.                     Is held for sale in the normal course of business, or

ii.                   Will be used in producing goods or services for sale.

Inventories are current assets and reported on the balance sheet and as current assets they can be used or converted into cash within one year or within next operating cycle of the business, whichever is longer.

The measurement of inventory has a significant effect on income determination and financial position of a business enterprise. The American Institute of Certified Public Accountants (USA) states:

“A major objective of accounting for inventories is the proper determination of income through the process of matching appropriate costs against revenues.”

The pricing or costing of inventory is one of the most interesting and most widely debated problems in accounting. Generally, inventories are priced at their cost in conformity with the cost concept. According to AICPA (USA), “the primary basis of accounting for inventory is cost, which is price paid or consideration given to acquire an asset. As applied to inventories, cost means, in principle, the sum of the applicable expenditures and charges directly or indirectly incurred in bringing an article to its existing condition and location.”