Inventory Items and Costs Items in merchandise inventory-includes all goods owned by a company and held for sale. Goods on consignment-owned by consignor. Goods damaged or obsolete-not included if unsalable. Cost of Merchandise Inventory Cost of inventory includes all expenditures necessary, directly or indirectly, in bringing an item to a salable condition and location. Invoice price minus any discount, plus import duties, transportation-in, storage, and insurance are additions to the cost of inventory.
Cost then equals invoice cost.
Used to adjust the Inventory account balance to the actual inventory on hand and thus account for theft, loss, damage and errors. Because inventory costs affect net income, they have potential tax effects. Several inventory costing methods are acceptable for tax purposes. Financial reporting method may differ from method used for tax reporting, except LIFO may only be used for tax purposes if it is also used for financial reporting. The Consistency principle requires the use of the same accounting methods period after period so the financial statements are comparable across periods.