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Page 1 Section A Fundamentals of Accountancy ,Chapter 4 CA (Dr.) Akash Gupta FCA, M.COM, PHD Page 2 Section A Fundamentals of Accountancy ,Chapter 4 CA (Dr.) Akash Gupta FCA, M.COM, PHD Meaning of Inventory Types of Inventories Inventory valuation Basis of Inventory Valuation Valuation Inventory Techniques • FIFO(First in first out) Method • LIFO(Last in first out)Method • Average Price Method • Weighted Average Price Method Page 3 Section A Fundamentals of Accountancy ,Chapter 4 CA (Dr.) Akash Gupta FCA, M.COM, PHD Meaning of Inventory Types of Inventories Inventory valuation Basis of Inventory Valuation Valuation Inventory Techniques • FIFO(First in first out) Method • LIFO(Last in first out)Method • Average Price Method • Weighted Average Price Method Non-Historical cost methods Inventory Record Systems • Periodic Inventory System • Perpetual Inventory System Stock Taking MCQ Page 4 Section A Fundamentals of Accountancy ,Chapter 4 CA (Dr.) Akash Gupta FCA, M.COM, PHD Meaning of Inventory Types of Inventories Inventory valuation Basis of Inventory Valuation Valuation Inventory Techniques • FIFO(First in first out) Method • LIFO(Last in first out)Method • Average Price Method • Weighted Average Price Method Non-Historical cost methods Inventory Record Systems • Periodic Inventory System • Perpetual Inventory System Stock Taking MCQ Inventory can be defined as tangible assets: Held for sale in the ordinary course of business; In the process of production for such sale; In the form of materials or supplies to be consumed in the production process or in the rendering of services. Page 5 Section A Fundamentals of Accountancy ,Chapter 4 CA (Dr.) Akash Gupta FCA, M.COM, PHD Meaning of Inventory Types of Inventories Inventory valuation Basis of Inventory Valuation Valuation Inventory Techniques • FIFO(First in first out) Method • LIFO(Last in first out)Method • Average Price Method • Weighted Average Price Method Non-Historical cost methods Inventory Record Systems • Periodic Inventory System • Perpetual Inventory System Stock Taking MCQ Inventory can be defined as tangible assets: Held for sale in the ordinary course of business; In the process of production for such sale; In the form of materials or supplies to be consumed in the production process or in the rendering of services. In case of manufacturing Concerns • Raw Material • Work in Progress • Finished Goods • Stores and Supplies In case of Trading Concern • Finished GoodsRead More
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FAQs on PPT - Inventories - Principles and Practice of Accounting - CA Foundation
| 1. What is inventory in accounting and why is it important? |  |
Ans. Inventory in accounting refers to the goods or materials that a company holds for production, sale, or consumption. It includes raw materials, work-in-progress, and finished goods. Inventory is important as it represents the company's investments and can impact its profitability and cash flow. It also helps in meeting customer demand, facilitating production processes, and managing supply chain operations.
| 2. How is inventory valued in accounting? | |
Ans. Inventory can be valued using various methods such as the First-In, First-Out (FIFO) method, Last-In, First-Out (LIFO) method, and weighted average cost method. The FIFO method assumes that the goods purchased or produced first are sold first, while the LIFO method assumes that the goods purchased or produced last are sold first. The weighted average cost method calculates the average cost of inventory based on the total cost divided by the total quantity.
| 3. What are the different types of inventory? | |
Ans. There are typically three types of inventory: raw materials, work-in-progress, and finished goods. Raw materials are the basic materials used in production, work-in-progress includes goods that are still being manufactured or processed, and finished goods are the completed products ready for sale to customers.
| 4. How does inventory management affect a company's financial statements? | |
Ans. Inventory management directly impacts a company's financial statements. The value of inventory affects the balance sheet, where it is reported as a current asset. The cost of goods sold, which includes inventory costs, is reported on the income statement, impacting the company's profitability. Efficient inventory management can help optimize cash flow, minimize carrying costs, and prevent stockouts or overstocks.
| 5. What are the potential risks and challenges associated with inventory management? | |
Ans. Inventory management faces several risks and challenges, including stock obsolescence, inventory shrinkage (theft or loss), inaccurate forecasting, supplier issues, and demand fluctuations. These challenges can lead to increased costs, reduced profitability, and customer dissatisfaction. Effective inventory management strategies, such as implementing robust inventory tracking systems and adopting just-in-time (JIT) inventory techniques, can help mitigate these risks.
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