OVERVIEW

In accounting, the term inventory refers to a stock of goods held for sale in the ordinary course of business or goods that will be used or consumed in the production of goods to be sold. A number of questions regarding inventory are addressed in this chapter. These include: (1) What goods should be included in inventory? (2) How will the selection of a particular cost flow assumption affect the income statement and balance sheet? (3) What is the LCM rule for inventory valuation? (4) How do you compute an estimate of the cost of ending inventory using the grossprofit method? (5) How do you determine the cost of ending inventory using the retail method? (6) How do inventory errors affect the financial statements?

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