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Dear Sir/Madame,
I want to ask when should inventory recorded in FS if purchase and receipt were on different accounting period?
Could you also explain to the how this recording may affect inventory cut-off?
Thank you!!
Please take a look at this post and ask further if it doesn’t answer your question https://opentuition.com/topic/when-should-i-record-inventory
Dear Sir/Madame,
After reading the above post, I have figured out that there are 2 cases:
– Goods are received before year-end & Invoice received after year-end
Goods received are recorded in GRN and found at the warehouse at year-end. However, the invoice has not been issued by the supplier, which results in risk that corresponding purchases and payables have not been recorded in FSs –> Affect CUT-OFF OF PURCHASE, PAYABLES.– Invoice received before year-end & Goods received after year-end
There is risk that entity may record Purchase & Payables in FSs while Inventory have not found in warehouse at year end. –> Affect CUT-OFF OF PURCHASE, PAYABLES & OVERSTATEMENT OF COGS.But as far as I concerned, company may perform year-end physical count or perpetual count, Closing inventory in SoFP should reflect the ACTUAL NUMBER of Inventory in warehouse so the recording of Purchase should NOT AFFECT CUT-OFF OF INVENTORY? (In BPP Kit answer, I often see the assertion is “cut off of inventory, payables, purchases” together).
Can you please confirm my understanding and help the explain the above question?
Thank you!!
Your 2 cases are correct, but as an assertion, cut-off applies only to transactions (See in our notes I think chapter 16). This affects the otherside of the entry, in this case payables.
The y/e valuation of inventory is indeed based on count. BUT if buyer has liability for GIT at the y/e they would add them to the inventory valuation and the purchase would have to be recorded during the year – either a trade payable if the invoice is received and processed, or as an accrual.
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