Inventory Management Concepts

Inventory Types

• Types of Inventory:
  • Raw materials
  • Partially completed inventory
  • Finished goods
  • Merchandise inventory (products intended for resale)

Inventory Valuation

• Asset Classification: All inventory types are considered assets.
• Measurement Methods: Weighing, counting, measuring are used for determining quantities.

Inventory in Transit

• FOB (Free on Board) Terms:
  • FOB Shipping Point: Buyer receives title when goods are shipped.
  • FOB Destination: Buyer receives title upon delivery.
• Consideration: Determine buyer's or seller's position to know inventory title.

Consigned Goods

• Consignor vs. Consignee:
  • Consignor: owner of the goods (retains title).
  • Consignee: has possession but not ownership.
• Implication in Inventory Counting: Only consignor counts consigned goods as inventory.

Example Calculations

• Inventory Adjustments:
  • Remove consigned goods from inventory count if title ownership does not revert to the company.
  • Add in-transit goods if title is held at FOB shipping point.
• Miscellaneous Considerations:
  • Supplies are not counted as inventory; they should be excluded.