Monday, November 17, 2008

Re: question re how a company accounts for its inventory and the method used

In doing email reference today, an accounting student has inquired on how to learn how a company accounts for its inventory and the method used. The company was Barnes & Noble, but as this appears to be an assignment, perhaps there will be many more similar questions.

I think the easiest way to find this information is to suggest that the student search the more recent 10K filing, or 20F (foreign company trading in the U.S) and search for the word inventory. Of our databases, Thomson Research and Edgar Online I-Metrix might be the easiest for a keyword search. There are two methods for accounting for the cost of inventory, first in , first out, or last in, first out. (Other words to search for, or for their abbreviations, FIFO and LIFO.)

here is an excerpt of the information from Barnes & Noble's 2007 10k:

(under Merchandise Inventories)

"Merchandise Inventories
Merchandise inventories are stated at the lower of cost
or market. Cost is determined primarily by the retail
inventory method on the first-in, first-out (FIFO)
basis for 99% and 96% of the Company’s merchandise
inventories as of February 2, 2008 and February 3, 2007,
respectively. The remaining merchandise inventories
are recorded based on the average cost method.
Market is determined based on the estimated net realizable
value, which is generally the selling price. Reserves
for non-returnable inventory are based on the Company’s
history of liquidating non-returnable inventory.
The Company also estimates and accrues shortage for
the period between the last physical count of inventory
and the balance sheet date. Shortage rates are estimated
and accrued based on historical rates and can be affected
by changes in merchandise mix and changes in actual
shortage trends."

I hope that this is helpful.


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