Inventory Accounting

The branch or the subset of accounting that deals with the recording, maintaining and valuation of the assets stored in inventory is called inventory accounting. Inventory accounting maintains and value inventory of a business that contain ready to sale products, products that are in the process of production for ultimate sale, materials and supplies stored in the inventory that are being used in production of the end product. Inventory accounting is important as it helps in valuation of the inventory that may be changed due to depreciation, change in market value, prolonged production period, change in product demand, change in customer requirement, change in market supply and many other factors.

Accounting of inventory is an important task that a business has to fulfill in order to fulfill the standards of GAAP. It is important to account inventory for a business if a business is proper following the GAAP guidelines in accounting. Inventory accounting helps a business to find actual value of inventory as helps in avoiding understating the value of the inventory that may result in overstating the profit of the business. Inventory accounting is different than that of sales and cost accounting because each time a sale or purchase is made it is recorded in its respective account of ledger however inventory is not accounted on each sale and purchase instead it is accounted at the end of the year or at the end of that financial period. Inventory accounting makes a business more efficient and practical to handle and operate.

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