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Inventory accounting
Inventory accounting of an enterprise is necessary both for optimizing its activities and for further planning. Inventories are essentially current assets that are held by the enterprise for various purposes and must be correctly reflected in accounting. A qualified specialist must have knowledge of how to reflect acquisitions and disposals on the enterprise’s balance sheet, calculate cost, and fill out a general financial statement.
Enterprise inventories: what are they?
Inventories play a key role in operating activities. According to the current National Accounting Standard 9 “Inventories”, they are recognized as non-current assets for the purpose of:
- holding for sale;
- being in the process of production for further sale;
- realization for the management of the enterprise.
Inventories include a wide range of material assets, the types of which will be considered below.
What types of inventories should be allocated at the enterprise?
According to current national legislation, inventories at the enterprise should be divided into:
- first, production materials (for use in the production process, performance of work);
- second, work in progress (products that have not passed all stages of processing);
- third, finished products intended for sale (goods);
- fourth, low-value and perishable items (used for no more than 1 year);
- finally, biological assets (animals for fattening and plants).
When can inventories be recognized as assets of the enterprise?
Inventories can be recognized as assets of the enterprise and reflected in its Balance Sheet only when they meet two main criteria – obtaining future economic benefits and carrying out a valuation. In other words, there must be a high probability for inventories that they will be sold or consumed in the course of production. To correctly reflect them as assets in the enterprise, it is necessary to calculate the cost price, which consists of: purchase price; customs duties or indirect taxes; transportation and other costs. For more detailed information, we also recommend consulting our accountant.
Inventory accounting: how to correctly reflect in accounting documentation?
The specified process covers the valuation of inventories upon receipt, documentation of their movement and sales operations, respectively. All actions with inventories must be confirmed by primary documents, in particular:
- a profit order;
- an act of acceptance and transfer;
- a limit-withdrawal card;
- a write-off act, etc.
It is worth emphasizing that the income received as a result of the corresponding sale of the enterprise’s inventories is reflected in Account 712. A more difficult situation for correctly determining the place of inventories in accounting occurs when it comes to disposal. More on this in the next section.
What should be the reflection of inventories in accounting when they are disposed of from the enterprise’s balance sheet?
Disposal of inventories is their write-off from the enterprise’s balance sheet as a result of sale, free transfer, return, use in production, deterioration. The main task of accounting in this case is to reliably write off their book value, respectively. Let’s consider the main cases of inventory disposal:
- sale for foreign currency (reflected in the same way as when selling goods);
- free transfer (Dt 949 – Kt 20, 22, 28);
- return of inventory to the supplier (Dt 63 – Kt 20, 22, 28);
- use in production (Dt 23 – Kt 20, 22).
Accountant’s assistance in keeping records of the company’s inventories: what services does our specialist provide?
The accountant of the law firm “Prikhodko and Partners” provides comprehensive accounting services at the enterprise. Our specialists work with both enterprises that sell goods on the domestic market and companies in the field of foreign economic activity. Providing professionalism and an individual approach to solving the client’s problem, the accountant of our company:
- first, will calculate the full original cost of inventories;
- second, will collect and systematize all primary documents confirming the origin of inventories;
- third, will correctly reflect exchange rate differences (when selling inventories for foreign currency);
- fourth, will draw up documents on the internal movement of inventories;
- fifth, will correctly write off the cost of materials and products used;
- finally, will provide other services within the framework of accounting support.
Thus, inventory accounting, as one of the professional services of an accountant, includes estimating their cost, analyzing primary documents, and organizing their subsequent sale or write-off. You will need an accountant to ensure the accuracy of the information about them in the financial statements maintained by the enterprise. If desired, you can also get online advice to get answers to the questions that interest you.
To find out the price of the services of an accountant from the Law Firm “Prikhodko & Partners” for accounting for inventories at the enterprise, fill out the form below.
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We provide accounting outsourcing services for clients throughout Ukraine, and we can also serve companies abroad. Thanks to the use of modern online technologies, we have the opportunity to effectively cooperate with clients remotely, regardless of their location.
What business areas do you specialize in?
We have a staff of 50+ experienced lawyers with deep knowledge in specialized areas of law. Therefore, we serve a wide range of clients – from startups to large corporations, in various fields of activity.
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