Page 39 - Accountancy_F5

Chapter Inventory accounting

Two
Chapter Two: Inventory accounting

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Introduction
Accounting for inventory is a crucial aspect of inventory management, incorporating
essential techniques that help in inventory recording and management. In this chapter,
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you will learn meaning, types, valuation methods, stock estimation and insurance
claim. Also, you will learn to prepare and maintain accounting records related
to inventories by using different inventory valuation methods. The competencies
developed will enable you to demonstrate an understanding of concepts, theories
and principles of accounting as well as to prepare and maintain accounting records
related to inventories.

Classification of inventory
A business without inventory!!
IAS 2, classifies inventory into three distinct
categories: raw materials, work in progress,
Concept of inventory and finished goods. Each category has its
The term inventory, sometimes referes to unique characteristics and implications
as stock, describes the goods or products for accounting, and they are explained as
that are left unsold at the end of a given follows:
time frame. On the contrary, the phrase
can also refer to things kept in storage for Raw aterials: These are the inputs or factors
manufacturing, including raw materials, of production that a business requires in
as well as things that are actively being its manufacturing process. They can take
produced, referred to as work in progress. various forms depending on the nature of
International Accounting Standard (IAS) 2 the business. Raw materials can be classified
provided a standard definition for inventory. as direct or indirect. Direct materials are
IAS 2 states that assets kept for sale in the used in the manufacturing process and
regular course of business, in the process become part of the final product. Examples
of production for such a sale, or in the form include timber in carpentry, cotton in the
of supplies or materials to be used in the textile industry, and flour in baking. On
process of producing goods or providing the contrary, indirect materials do not form
services are all considered inventories. part of the finished goods but are consumed

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