You may have noticed that sometimes the income statements of companies include a line named as \u201cChange in inventory\u201d. Why would it be there you might ask since \u201cInventory\u201d is a balance sheet item and it\u2019s an asset account? Why would it be on the income statement?<\/p>\n
Matter of fact is that normally it isn\u2019t there, however if there\u2019s a change in inventory value, now there\u2019s a reason to include a line item called \u201cChange in inventory\u201d onto your income statement.\u00a0<\/p>\n
If you think about it, your inventory changes by two directions, decrease through sales, which on the income statement is part of cost of goods sold and is directly the expenses of specific goods sold, or decrease through stock count or some other form of discovery of actually not existing goods that are accounted in the books. That\u2019s when your inventory usually decreases. It normally increases through purchases or cases during stock count for an example where you\u2019ve discovered some items in your stock that aren\u2019t accounted yet.<\/p>\n
Now what happens however if you need to reflect the market price of an inventory item on your balance sheet. Normally your inventory is recognized in its cost. However, if the market price of the item goes lower than the initial cost it means your inventory item should be measured at its net realizable value and you should recognize the loss accordingly. You on one hand decrease the inventory account and on the other hand reflect the change on the \u201cChange in inventory\u201d account on the balance sheet.<\/p>\n
Just as the name says, the line item usually reflects those changes in values, not changes in items, note that.<\/p>\n","protected":false},"excerpt":{"rendered":"
You may have noticed that sometimes the income statements of companies include a line named as \u201cChange in inventory\u201d. Why would it be there you might ask since \u201cInventory\u201d is a balance sheet item and it\u2019s an asset account? Why would it be on the income statement? Matter of fact is that normally it isn\u2019t […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25,31],"tags":[],"class_list":["post-4637","post","type-post","status-publish","format-standard","hentry","category-1-basic-accounting","category-1-3-inventory"],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\n\t\t