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Inventory

Assets held for sale in the ordinary course of business, in the process of production for sale, or in the form of materials or supplies to be consumed in production.

Gross Profit

The difference between sales revenue and the cost of goods sold, indicating the profitability of a company's core operations.

FIFO (First In, First Out)

A cost flow assumption method that allocates the oldest inventory costs to cost of goods sold first.

Perpetual Inventory System

An inventory accounting system that continuously updates inventory records for purchases and sales.

Periodic Inventory System

An inventory accounting system that updates inventory records at specific intervals, typically requiring a physical count.

Lower of Cost and Net Realizable Value (LCNRV)

An accounting method to value inventory at the lesser of its original cost or its estimated selling price minus costs to sell.

Cost Flow Assumptions

Methods used to determine how costs associated with inventory are allocated between the income statement and the balance sheet.

Overvaluation of Inventory

When inventory is reported at a higher value than can be recovered, often requiring a write-down to avoid misrepresentation.

Write-Down

The reduction of an asset's carrying value on the balance sheet, usually to reflect its current fair market value.

Gross Profit Margin

A financial metric calculated as (Gross Profit ÷ Sales Revenue) × 100, used to assess profitability.

Inventory Turnover Period

A measure of how quickly inventory is sold or used, calculated as (Average Inventories Held ÷ Cost of Sales) × 365.

Assets

Resources owned by a company that have future economic value.

Competitive Pressures

Market forces that impact a company's ability to sell its products, often influencing inventory valuation and write-downs.

Inventory Errors

Mistakes in accounting for inventory that can affect cost of goods sold and financial statements.

Biological Assets

Living plants or animals used to produce agricultural products, accounted for differently under IFRS.

Materiality in Accounting

The significance of financial information that could influence the decisions of users of financial statements.

Judgment in Accounting

The process of making informed decisions in accounting based on available information and professional standards.