CHAPTER-1
INTRODUCTION

1.1 Background

Successful inventory management involves crating a purchasing plan that will ensure that items are available when they are needed but that neither too much nor too little is purchased and keeping track of existing inventory and its use. Two common inventory management strategies are the just -in-time method, where companies plan to receive items as they are need rather than maintaining high inventory levels, and materials requirement planning, which schedules material deliveries based on sales forecasts.
An inventory valuation allows a company to provide a monetary value for items that make up their inventory. Inventories are usually the largest current asset of a business, and proper measurement of them is necessary to assure accurate financial statements. If inventory is not properly measured, expenses and revenues cannot be properly matched and a company could make poor business decisions.
The two most widely used inventory accounting systems are the periodic and the perpetual. * Perpetual: The perpetual inventory system requires accounting records to show the amount of inventory on hand at all times. It maintains a separate account in the subsidiary ledger for each good in stock, and the account is updated each time a quantity is added or taken out.
The perpetual system records revenue each time a sale is made. Determining the cost of goods sold requires taking inventory. The most commonly used inventory valuation methods under a periodic system are: 1. first-in first-out (FIFO) 2. last-in first-out (LIFO) 3. average cost or weighted average cost
These methods produce different results because their flows of costs are based upon different assumptions. The FIFO method bases its cost flow on the chronological order purchases are made, while the LIFO method bases it cost flow in a reverse chronological