Explore the FASB Codification

a. An inventory plays an inportant role in finances becauserevenues may be obtained from its sale, or from the sale of thegoods or services used in their production.

b. Usually such revenues arise from a cycle of operations inwhich goods are purchased/ created, and sold, and new goods arebought for additional sales or from a continuous repetitiveprocess.

c. At any particular point in time, the inventory is the balanceof costs applicable to goods on hand remaining after comparing theabsorbed costs with revenue arised.

d. The inventory balance is accordingly carried forward tofuture periods, but keeping in mind that it does not supersede anamount chargeable against the revenues which are expected to arisefrom the final sale of the goods carried forward. The usualpractice of determining the inventory balance is done by carryingout the process of pricing the articles included in theinventory.

e. The principle ASC 330 is applicable to all entities. Theaccounting for inventories is significant for many entities sinceit is important for both the income statement and the statement offinancial position.

f. The principle covers the meaning of net realizable value,market and inventory. It provides explanation for the four factorswhich affect the determination of ownership:

(i) Goods in transit (ii) Consignment arrangements (iii)Consignment arrangements and (iv) Sales made with the buyer havingthe right of return

g. It also talks about the most common cost flow assumptions

(i) first-in, first-out (FIFO) (ii) last-in, first-out (LIFO)and (iii) weighted-average.