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The high risk of finished goods inventory is the risk of loss of inventory due to theft, spoilage, or even fire. Storing finished goods is also expensive and if the market changes, can destroy a business.
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What is the risk of holding inventory?
Demand may drop and your inventory may lose all of its value.
How does inventory affect profit?
Inventory PurchasesWhen you purchase items for inventory, the transaction will affect your balance sheet, the financial statement that provides a snapshot of your company's worth based on its assets and liabilities. You record the value of the inventory; the offsetting entry is either cash or accounts payable, depending on the method you used to purchase the goods. At this point, you have not affected your profit and loss or income statement.Inventory SoldOver time, you use the items in your inventory to fill customer orders. You record the sales in an income statement account; the offset to sales is either cash or accounts receivable, which are both balance sheet accounts. Because you used inventory from a balance sheet account and recorded sales on your income statement, your profits are overstated unless you make the necessary adjustment. You need to reduce your inventory for the value of the items sold, with the offsetting entry to a cost-of-goods sold account. Your cost-of-goods sold account is an income statement account. You have now affected your profit and loss.Inventory AdjustmentsIn the normal course of business, you might find that the balance in your inventory is inaccurate. This might be due to breakage occurring after the goods were in your possession, the failure to add returned goods back to your inventory or errors that you simply cannot explain. You might also have products in your inventory that you know you cannot sell for full price, such as a supply of the current year's calendars remaining in June. You need to adjust your inventory to an accurate value, so you credit inventory and debit your cost-of-goods sold account, which again affects your profit and loss statement.Inventory Reserve AccountA major inventory adjustment, such as adjusting inventory only at year-end, can play havoc with your profit and loss statement for the period in which you make the adjustment. To avoid skewing the numbers, companies sometimes use an inventory reserve account. The basic idea is that they know that a certain percentage of their inventory has historically been lost or become obsolete. Each month, they record an amount, typically a percentage of the inventory value, in an inventory reserve account. The inventory reserve account is a balance sheet account and should have a negative balance; when netted against your positive-balance inventory accounts, you have a more accurate picture of your inventory's worth. The offset to the entry is your cost-of-goods sold account. When you need to adjust your inventory, you record the entry to your inventory reserve account and offset it against your cost-of-goods sold account. By taking smaller, more frequent adjustments, you do not risk a major impact.
Why do you need to keep inventory?
to maintain the risk of demand uncertainity in an organization
What are the advantage of holding inventory?
Advantage of holding inventory is the reduction of risk of out of inventory and loss of sales and also availing any good sales opportunity which may be loss due to lack of enough inventory stock.
Is it good or bad for a retail store to have a large inventory and why?
There are advantages as well as disadvantages of having a large inventory. Few of them are listed below: Advantages: 1. Keeping up with consumer demand i.e. no loss of sales 2. Opportunity to purchase at lower per unit price through bulk buying Disadvantages: 1. High storage, insurance, security costs. 2. Risk of Obsolescence. 3. Money spent on purchasing large inventory could have better spent elsewhere.
What are the Advantages and disadvantages of keeping stock?
Advantages of high level of stocks are many like it provides a buffer to the companies against the high demands. If the prices of the products are expected to increase in future then a high level of inventory can also give a capital gain to the companies. High level of stocks can also eliminate the risk of fall of supply in the future. Shortages of goods in the market in future can be handled by keeping high levels of inventory. On the other hand, the main disadvantage of keeping high levels of finished products will increase the costs of the warehouse management. Secondly, if the prices of the finished goods are expected to fall then the company can get the capital loss. Poor inventory management can result in the loss of inventory like obsolete inventory problems.
What is the effect of too much inventory?
A company that has too much inventory increases its risk for carrying goods that may not be sold, either due to obsolescence or low demand for the product. A company that carries too much inventory also pays increased warehousing costs to store excess items and additional money producing the goods if they are the manufacturer of the products. The total effect could be summed as inefficiencies in the companies supply chain.
What is the audit risk for Qantas?
more inventory
What is the risk of holding inventory?
Demand may drop and your inventory may lose all of its value.
What are the risks associated with spot buying?
goods or services are priced high
What is the importance of goods in transit?
Goods in Transit Insurance is required to be taken out by the shipper if the goods are of a high value. Normally the goods are covered for insurance by the haulier but only for a nominal value lets say 5 USD per kilo so this is why separate insurance can be required. A lot of freight companies have goods in transit insurance specifically for certain customers who have valuable high risk products such as sports goods or alcohol.
list and explain audit procedures for inventory in transit?
Audit Procedures Cutoff analysis. Observe the physical inventory count. Reconcile the inventory count to the general ledger. Test high-value items. Test error-prone items. Test inventory in transit. Test item costs. Review freight costs. Cutoff analysis. The auditors will examine your procedures for halting any further receiving into the warehouse or shipments from it at the time of the physical inventory count, so that extraneous inventory items are excluded. They typically test the last few receiving and shipping transactions prior to the physical count, as well as transactions immediately following it, to see if you are properly accounting for them. Observe the physical inventory count. The auditors want to be comfortable with the procedures you use to count the inventory. This means that they will discuss the counting procedure with you, observe counts as they are being done, test count some of the inventory themselves and trace their counts to the amounts recorded by the company's counters, and verify that all inventory count tags were accounted for. If you have multiple inventory storage locations, they may test the inventory in those locations where there are significant amounts of inventory. They may also ask for confirmations of inventory from the custodian of any public warehouse where the company is storing inventory. Reconcile the inventory count to the general ledger. They will trace the valuation compiled from the physical inventory count to the company's general ledger, to verify that the counted balance was carried forward into the company's accounting records. Test high-value items. If there are items in the inventory that are of unusually high value, the auditors will likely spend extra time counting them in inventory, ensuring that they are valued correctly, and tracing them into the valuation report that carries forward into the inventory balance in the general ledger. Test error-prone items. If the auditors have noticed an error trend in prior years for specific inventory items, they will be more likely to test these items again. Test inventory in transit. There is a risk that you have inventory in transit from one storage location to another at the time of the physical count. Auditors test for this by reviewing your transfer documentation. Test item costs. The auditors need to know where purchased costs in your accounting records come from, so they will compare the amounts in recent supplier invoices to the costs listed in your inventory valuation. Review freight costs. You can either include freight costs in inventory or charge it to expense in the period incurred, but you need to be consistent in your treatment - so the auditors will trace a selection of freight invoices through your accounting system to see how they are handled. Test for lower of cost or market. The auditors must follow the lower of cost or market rule, and will do so by comparing a selection of market prices to their recorded costs. Finished goods cost analysis. If a significant proportion of the inventory valuation is comprised of finished goods, then the auditors will want to review the bill of materials for a selection of finished goods items, and test them to see if they show an accurate compilation of the components in the finished goods items, as well as correct costs. Direct labor analysis. If direct labor is included in the cost of inventory, then the auditors will want to trace the labor charged during production on time cards or labor routings to the cost of the inventory. They will also investigate whether the labor costs listed in the valuation are supported by payroll records. Overhead analysis. If you apply overhead costs to the inventory valuation, then the auditors will verify that you are consistently using the same general ledger accounts as the source for your overhead costs, whether overhead includes any abnormal costs (which should be charged to expense as incurred), and test the validity and consistency of the method used to apply overhead costs to inventory.
Why do you need to keep inventory?
to maintain the risk of demand uncertainity in an organization
How does inventory affect profit?
Inventory PurchasesWhen you purchase items for inventory, the transaction will affect your balance sheet, the financial statement that provides a snapshot of your company's worth based on its assets and liabilities. You record the value of the inventory; the offsetting entry is either cash or accounts payable, depending on the method you used to purchase the goods. At this point, you have not affected your profit and loss or income statement.Inventory SoldOver time, you use the items in your inventory to fill customer orders. You record the sales in an income statement account; the offset to sales is either cash or accounts receivable, which are both balance sheet accounts. Because you used inventory from a balance sheet account and recorded sales on your income statement, your profits are overstated unless you make the necessary adjustment. You need to reduce your inventory for the value of the items sold, with the offsetting entry to a cost-of-goods sold account. Your cost-of-goods sold account is an income statement account. You have now affected your profit and loss.Inventory AdjustmentsIn the normal course of business, you might find that the balance in your inventory is inaccurate. This might be due to breakage occurring after the goods were in your possession, the failure to add returned goods back to your inventory or errors that you simply cannot explain. You might also have products in your inventory that you know you cannot sell for full price, such as a supply of the current year's calendars remaining in June. You need to adjust your inventory to an accurate value, so you credit inventory and debit your cost-of-goods sold account, which again affects your profit and loss statement.Inventory Reserve AccountA major inventory adjustment, such as adjusting inventory only at year-end, can play havoc with your profit and loss statement for the period in which you make the adjustment. To avoid skewing the numbers, companies sometimes use an inventory reserve account. The basic idea is that they know that a certain percentage of their inventory has historically been lost or become obsolete. Each month, they record an amount, typically a percentage of the inventory value, in an inventory reserve account. The inventory reserve account is a balance sheet account and should have a negative balance; when netted against your positive-balance inventory accounts, you have a more accurate picture of your inventory's worth. The offset to the entry is your cost-of-goods sold account. When you need to adjust your inventory, you record the entry to your inventory reserve account and offset it against your cost-of-goods sold account. By taking smaller, more frequent adjustments, you do not risk a major impact.
Are pickles a high risk food for bacteria?
No pickles are low risk sour more then sweet The high acidity inhibits bacterial growth Canned pickles like other canned goods present risk for botulism toxin Botulism is a anaerobic bacteria meaning it grows in an environment without oxygen Botulism toxin is extremely dangerous Ensure all canned goods are properly packed and sealed and store your pickles in the fridge after opening
A high risk rating in whr puts you at risk for what and why?
A high risk rating in WHR puts you at risk for what and why
What and why WHR puts you at risk in a high risk rating?
A high risk rating in WHR puts you at risk for what and why
