Determining Inventory Costs

Determining Inventory Costs - Determining Inventory Costs...

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Determining Inventory Costs Merchandise inventory includes costs of expenditures necessary, directly or indirectly, to bring an item to a salable condition and location. This means that the cost of an inventory item includes its invoice cost minus any discount, and plus any added or incidental costs necessary to put it in a place and condition for sale. Added or incidental costs can include import duties, freight, storage, insurance, and costs incurred in an aging process (for example, aging wine or cheese). Accounting principles prescribe that incidental costs be assigned to inventory. Also, the matching principle states that inventory costs should be recorded against revenue in the period when inventory is sold. However, some companies use the materiality principle ( cost-to-benefit constraint ) to avoid assigning incidental costs of acquiring merchandise to inventory. These companies argue either that incidental costs are immaterial or that the effort in assigning these costs to inventory outweighs the benefit.
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This note was uploaded on 07/03/2011 for the course ACC 225 taught by Professor Hatch during the Spring '11 term at Fresno Pacific.

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