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FIFO and LIFO accounting are methods used in managing inventory and financial matters involving the amount of money a company has to have tied up within inventory of produced goods, raw materials, parts, components, or feedstocks. They are used to manage assumptions of costs related to inventory, stock repurchases (if purchased at different ...
IAS 2 requires that those assets that are considered inventory should be recorded at the lower of cost or net realisable value. Cost not only includes the purchase cost but also the conversion costs, which are the costs involved in bringing inventory to its present condition and location, such as direct labour.
The accounting equation plays a significant role as the foundation of the double-entry bookkeeping system. The primary aim of the double-entry system is to keep track of debits and credits and ensure that the sum of these always matches up to the company assets, a calculation carried out by the accounting equation.
Perpetual inventory systems keep a running account of the company's inventory. Perpetual inventory systems involve more record-keeping than periodic inventory systems. Every inventory item is kept on a separate ledger. These inventory ledgers contain information on cost of goods sold, purchases, and inventory on hand.
Inventory Turn is a financial accounting tool for evaluating inventory and it is not necessarily a management tool. Inventory management should be forward looking. The methodology applied is based on historical cost of goods sold. The ratio may not be able to reflect the usability of future production demand, as well as customer demand.
Fixed monthly expenses. These are costs that remain constant from month to month. Examples include rent or mortgage payments, insurance premiums and subscription services.
A business pays salaries with cash: You increase salary (expenses) by recording a debit transaction, and decrease cash (asset) by recording a credit transaction. The totals show the net effect on the accounting equation and the double-entry principle, where the transactions are balanced.
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