week 2 Client Understanding Paper final

week 2 Client Understanding Paper final - 1 Client...

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1 Client Understanding Paper Running Head: CLIENT UNDERSTANDING PAPER Client Understanding Paper Jeena Cao University of Phoenix ACC/541 Accounting Theory & Research Sonja Wilson November 1, 2010
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2 Client Understanding Paper Client Understanding Paper At the end of the year, we are requires to do an end of the year review for our company, ABCompany, Inc. Our financial statements must comply with the Generally Accepted Accounting Principles (GAAP), and we need to make sure all of our financial accounting followed the Financial Accounting Standards Board (FASB). At times, additional financial information is needed, such as adjusting lower cost of market inventory on valuation, capitalizing interest on building constructions, recording gain or loss on asset disposal, and adjusting goodwill impairment. These information are the more detail aspect of our company’s financial statements, which are just as important as the financial statement itself. Market Inventory on Valuation Inventory valuation gives ABCompany, Inc. a monetary value on items included in their inventory, which is one of the reasons for why inventory valuation is so important. It not only gives ABCmpany, Inc. information about their assets but also allows these values to be compared to industry standards to evaluate management performance because inventory values are integral to various ratios. The four common methods used to valued inventories are FIFO, LIFO, average cost, and specific identification (Schroeder, Clark, & Cathey, 2005). The year-end balance sheet includes information, such as current inventory value and the quantity of goods, which are related to the market trends. This information is an overview of what is going on in the company at the moment, but it does not tell the readers what kind of revenue is expected. Other than generating sales, inventory valuation can be affected by other factors as well, such as inventory that becomes obsolete, perishable inventory and damaged/defective inventory. After the quantities of inventory are determined, then the company can calculate the inventory
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3 Client Understanding Paper valuation accurately. It is important to calculate the value of inventory correctly because this value represent a portion of the company’s asset as well as working capital, therefore it has an effect on the amount reported on the net income (Schroeder, Clark, & Cathey). According to Edmonds (et. Al), the Lower-of-Cost-or-Market-Rule (LCM) is an “accounting principle of reporting inventories at market value if their value has declined below their cost” (2007). This
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