Inventories Management Issues

Among the issues management must face in accounting for inventories are allocating the cost of inventories in accordance with the matching rule, assessing the impact of inventory decisions, and evaluating the levels of inventory. The objective of accounting for inventories is the proper determination of income through the matching of costs and revenues, not the determination of the most realistic inventory value. Because the valuation of inventory has a direct effect on a company’s net income, the choice of inventory systems and methods affects not only the amount of income taxes and cash flows but also the external and internal evaluation of the company. The level of inventory as measured by the inventory turnover and its related measure, average days’ inventory on hand, is important to managing the amount of investment needed by a company.

• Just-in-Time Operating Environment
• Merchandise Inventory