ACCOUNTING FOR INVENTORY: FOUR IMPORTANT ISSUES
Figure 7-2 summarizes four important issues that must be addressed when accounting for inventory. At the top of the figure, the life cycle of inventory is divided into four segments. Inventory is (1) acquired, through purchase or manufacture, and then (2) carried on the company's balance sheet. It then either (3) is sold or (4) remains on the balance sheet as ending inventory. At each of these four points, an important issue in financial accounting must be addressed. The remainder of the chapter covers these four points in order.
FIGURE 7-2 Accounting for inventory: Four important issues
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