Inventory Accounting

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Definition: Inventory Accounting

Inventory accounting is the method of keeping an account of the inventories or goods, which is a significant asset for a company, stored in a warehouse. Inventory accounting is essential for understanding various expenses like storage, transportation etc, which helps is calculating the value of inventories for correct financial statements. 

The two most famous inventory accounting mechanisms are the periodic and the perpetual.

1. Perpetual: In this case, each and every inventory transaction is noted down for calculation at real-time.

2. Periodic: At the end of every financial year, a check is done with all the stock, to see the amount of inventory with the company.

Some of the most promiment ways to inventory accountung using the perpetual method are:

1. Average cost or weighted average cost

2. last-in first-out (LIFO)

3. first-in first-out (FIFO)

Inventory accounting is critical for a business as it helps in inventory management, storage, calculating expenses and understanding the business transactions better.

Hence, this concludes the definition of Inventory Accounting along with its overview.

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