As consultants for a new retail company, B.A.S.S. Customized Jewelers, our recommendations for reporting and valuing various assets of the business, as well as inventory policy, capitalization policy, and how these policies will help the company succeed are presented here. In this line of business, demonstrations of depreciation method recommendations are critical to show the inventory allocation and asset costs over the life of the inventory. Lastly, an examination of the policies and alternative valuation methods to justify the use of certain methods to use will be determined. This is the beginning process of meeting the future goals of the company and it is the desire of our committee and the company that as the C.E.O. you will find the recommendations viable.
Inventory Policy
Inventory management practices are varied; the accounting management is similar when it comes to inventory items. In the retail business, the shelves hold inventory until the product is purchased by the consumer.
“The inventory account of a firm holds the cost of a product until the cost is released to the income statement to be subtracted from (matched with) the revenue from the sale. The cost of a purchased or manufactured product is recorded as an asset and carried in the asset account until the product is sold (or becomes worthless or is lost or stolen), at which point the cost becomes an expense to be reported in the income statement. The cost of an item purchased for inventory includes not only the invoice price paid to the supplier, but also other costs associated with the purchase of the item such as freight and material handling charges. Cost is reduced by the amount of any cash discount allowed on the purchase. The income statement caption used to report this expense is Cost of Goods Sold.” (Marshall, p. 151, 2003)
