Inventory Systems, Types and differenes

January 2017 | 11 pages | ID: I72AC392EADEN
Sadia Saeed

Abstracts

Inventory is something that is held by any business for the purpose of sale or processing. Inventory is considered as asset of the manufacturer. Inventory may be in the form of raw material, work in process and finished goods.Inventory is recorded in the balance sheet at the cost of purchase. Inventory is one of the basic elements of the business. Different businesses need different inventory methods based on their size of the business, nature of inventory etc. all of the inventory systems have their own pros and cons. Some systems are good for the point of view of the investors, and some systems are good according to the tax implications, some are good according to the depiction of its profits. Different companies adopt difference methods for the purpose of gaining their desired objectives. Some companies want to depict higher profits and some want to get tax advantages by hiding their true profits. So we can say that different inventory systems are adopted by companies according to their desired objectives. There are many methods of recording inventory; the basic two methods are periodic inventory system and perpetual inventory system (Shusheng Gu, 2010). Cont... (3500 words of this report)

Contents

Introduction
Periodic inventory system
Perpetual inventory system
Difference between periodic and perpetual inventory system
Application of periodic and perpetual inventory system
Periodic inventory System
Perpetual inventor system
Effect of FIFO and weighted average method on financial statements
First in first out method
Income effect
Cash flow effect
Working Capital
Effects of FIFO Method on Accounting Ratios
Profitability Effects
Weighted average method
Requirements for applying FIFO and weighted average method
First in first out method (FIFO)
Weighted average method
Application of FIFO and weighted average method and financial statement
FIFO, Financial statement and decisions
Conclusion
References