Recording Inventory on the Balance Sheet
by David Bazile
Hope all is going well for you. I am back with another question which is giving me a challenge. In the business where I work, there is inventory kept in storage and also inventory in the back room of the shop. When you have to record inventory on the balance sheet, what are the steps to take to do that accurately?
I'm aware of the two accounting methods which are related to inventory. But even being aware of those methods, I'm still having a bit of a challenge recording inventory.
When you have inventory in storage, but you may not have the receipts to show you what it was purchased for, you need to estimate what the cost was when purchased, or assign a fair market value to the items.
How to do that?
What would you have to pay for it today? That's one way to assign a fair market value. Or you could try digging thru old paperwork to find the receipts. Easiest way? Price the item today, and assign that cost to each item you have stored.
If these items are not on the Balance Sheet yet, you need to make an entry to put them on the books.
Debit Inventory of course. What's the credit? You could credit Owners Equity, under the assumption that the owner purchased the items originally.
Hope that helps David.
Let me know if you need anything else.