ACCTG 1 Lecture Notes - Lecture 12: Retained Earnings, Inventory Turnover, Internal Control
Document Summary
Effect of inventory errors on statement of financial position. An error in ending inventory of the current period will have a reverse effect on net. An error in ending inventory affects retained earnings of the same period income in the next accounting period. But not the next period, as the error reverses. Valuing inventory at the lower of cost and net realizable value. When the net realizable (fair) value is less than cost, the value is written down. The lower of cost and net realizable value (lcnrv) rule. Net realizable value is selling price less any costs to make goods ready for sale. Apply the rule to individual inventory items. Reduce inventory by crediting it for the amount of write-down, debit is to cost of. When conditions that caused the write-down have changed goods sold. At the lower of cost and nrv. No significant differences between ifrs and aspe. Two ratios help manage a company"s inventory:
