You’re producing items that you’re selling. During this process you encounter various types of expenses – material itself, your own time and / or people that work for you and produce those goods or components for those goods, depreciation of machinery and equipment, expenses relating to utilities etc.
It’s not just those expenses, but also marketing and general administrative expenses that a business encounters. Continue reading
Inventories are sensitive in nature – they’re bought in stock that you hope to sell or use some day. This “some” day is your estimate of the possible need of the market and as we know with estimates, they may be wrong.
In this sense inventories are sensitive because they’re your stock, you’ve paid for them and you hope to sell them. However, on your balance sheet they should be recognized in lowest of either the cost of the item or the value you hope to sell them one day (it’s called “net realisable value”). This is where sensitivity comes in. Continue reading
When we talk about inventory and its value you may hear or read the word “active market” being used. What is an active market however?
An active market when it comes to measuring the value of inventory essentially is the market you are expected to sell your goods. It’s not the market you plan to go with your products, it’s the market you are already in, you make regular sales and you can estimate a selling price over there. Continue reading
Your inventory is an amount of goods and / or materials you own in your business. An item of inventory is a physical, tradable and / or usable item. The general purpose of an inventory item and obviously inventory total is always to make business.
Items of inventory are such that you use for either production, sales (that is you’re selling those items) or for your own use in running your business. The latter is something that’s rather not common, but happens nonetheless. Continue reading
You received goods into your warehouse and now they’re just lying there all boxed up. In order not to mess things up, you should do some things in order and be careful. Your course of actions: Continue reading
When you’re dealing with long term shipments which take about more than 2-3 days, it’s always the question of when the risks and rewards have been delivered from the supplier to you as the buyer. The reason it’s important is the pure fact of when you should recognize the goods as in transit and on your balance sheet.
If you’re not dealing with long term shipments as often, the easiest thing to do is just right when you make the order and if applicable, also sign the agreement, just make sure that at that time you already know the terms of shipment and delivery. If you’re obliged to take care of the shipment itself, pay for it and say even insure the goods, its definite the risks have already transferred, so they are your goods.
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You have inventory for your business on your balance sheet and every now and then you need to purchase extra to keep the business going obviously. As it happens, the goods are never recognized in bulks, but in single units with their own unit price. Why? Because when you sell them, you mostly sell single units. Keeping that in mind, you have a unit selling price, so you must have the cost price for this single unit as well.
Regardless of this, you need to make sure the unit price is always right. It’s not just getting the right amount from the invoice, but also making sure you’ve added all the extra costs, like duties, transport fees etc. to the unit price. Normally those expenses are just spread across units the expense was made for (i.e. transport invoice is for a larger shipment, which includes like 1,000 units – the invoice amount is divided with the units and the result is added to a single unit price), or in case of bigger differences in unit own prices, you just take the proportion and then spread across units (i.e. 50% of the shipment was just 1 unit whereas the other 50% is like 500 units – the cost needs to be proportioned).
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