MGAB01H3 Chapter : Inventory errors
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MGAB01H3 Full Course Notes
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An error in ending inventory of the current period will have a reverse effect on net income of the next period. Valuing inventory at the lower of cost and market (lcm) Sometimes, inventory value is lower than its cost. The inventory can be written down to its market value. Lcm is an example of the accounting concept of conservatism. Conservatism means that when choosing among alternatives, the best choice is the method that is least likely to overstate assets and net income. For a merchandising company, net realizable value is the selling price less any costs required to make the goods ready for sale. Lcm is applied after the costing methods. How a company classifies their inventory is based on whether they are a merchandiser or manufacturer. www. notesolution. com. For a merchandiser, everything is classified as merchandise inventory. For a manufacturer, they can be classified as raw materials, work in progress, and finished goods. On the balance sheet, inventory follows receivables.