You may have noticed that sometimes the income statements of companies include a line named as “Change in inventory”. Why would it be there you might ask since “Inventory” is a balance sheet item and it’s an asset account? Why would it be on the income statement?

Matter of fact is that normally it isn’t there, however if there’s a change in inventory value, now there’s a reason to include a line item called “Change in inventory” onto your income statement.  Continue reading →

By definition work in progress is something that’s still in the progress of being finished. It’s no longer raw material and not just yet finished product either. In your accounting you’d refer “work-in-progress” to materials within the production process and partly finished products (i.e. components of finished products). Note that components may be part of some other components that are just another stage of the work-in-progress and not yet finished goods.  Continue reading →

Standard pricing in your inventory producing means two things – the prices need to be accurate and up-to-date. It’s not just having the right price but ensuring the price reflects actual costs made for producing this certain item. If the inputs change often, you need to identify the goods affected and test the standard against the actual quite often.

However, on bigger picture, standard pricing is aside continuous testing against actuals just another way to expense your inventory. If the inputs rarely change, it’s a pretty solid method however.  Continue reading →

Say the situation is as follows: you don’t want a complicated standard costing system; in fact you don’t need it. You produce small number of items or very similar that is at least and at the end of the day you’re looking for something that’s not overly complicated, not staying in your way of earning money and not stressing your accounting. Perfectly understandable and something I’ve come across may help you.  Continue reading →

Producing your own goods that you sell afterwards means that you include various expenses into the item’s price. It’s the material, labour cost, depreciation of equipment used, utilities etc. It’s various expenses used in production that form the price of the item.  Continue reading →

You have inventory on your balance sheet and it’s measured in its lower of cost or net realisable value. It increases as you buy items and once you write something down, it decreases in value. That’s the easy part.

However, once you start expensing it onto income statement (the third way inventory decreases), that’s where the fun starts. Well, fun or tricky part to say the least. Why is it so? Let me first explain. Say you’ve bought the same item with different prices, say 10 and 12 – on your inventory listing you have 1 item with the price of 10 and the other with 12, totalling to 2 items worth for 22.  What happens if you sell one of them?  Continue reading →

The thing with inventory write-offs is that it’s tempting to use straightforward math for determining the write-off amount.

Once something has been in stock for a year and it hasn’t been sold, doesn’t it feel like that it should automatically be written off like 50% or even fully? For some it seems and others it doesn’t. There’s nothing wrong with being more conservative, but little too much isn’t also all that good.  Continue reading →