Inventory Methods Student’s Name Institutional Affiliation Inventory Methods Inventory comprises of raw material work in progress and finished goods that the company holds for its production processes or for sale to the customers (Verma 2015). Valuation of inventory is significant in a company since it is considered a high-risk account in auditing because it has a direct impact on the reported net income. According to Feng et al. (2014) “when a firm fails to have adequate systems to control inventory purchase tracking and valuation there is a greater likelihood of a mismatch between inventory supply of goods sold and gross profit” (Gordon Raedy & Sannella 2016 5) The only disadvantage of perpetual system is that it requires a high initial cash outlay to set up the system. References Feng M. Li C. McVay S. E. & Skaife H. (2014). Does ineffective internal control over financial reporting affect a firm's operations? Evidence from firms' inventory management. The Accounting Review 90(2) 529-557. Gordon E. A. Raedy J. S. & Sannella A. J. (2016). Intermediate Accounting. Pearson. Verma M. (2015). Inventory Management Accounting for Obsolete Inventory. IUP Journal of Accounting Research & Audit Practices 14(1) 55. [...]
The choice of inventory method is critical to the merchandising operation. Identify a well-known company, and state what inventory method you think would be best for that company, and why.