INVENTORY ACCOUNTING

Accountants need to keep track of inventory costs or changes in the value of inventory resulting from increases or decreases in value of the stock when it is reported and used in making decisions. Changes in the value of inventory which need to be considered, include depreciation, deterioration, obsolescence, changes in customer tastes or demand, decreased market value and changes in production costs.

Not only are there different systems to value inventory (weighted average, FIFO, LIFO, etc.,), there are different classifications of the type of inventory. General cost classifications include Conversion Costs, Prime Costs and Non-manufacturing costs. Selling and Administrative costs are not treated as product costs but expensed as they are occurred.

There are three major classes of costs, these being Variable together with Fixed, Direct, or Differential together with Sunk or Opportunity Costs.

Further classification of costs include Idle Time or Overtime Costs.