• How to Divide Inventories into Sub-accounts
  • How to Divide Inventories into Sub-accounts
  • How to Divide Inventories into Sub-accounts
  • How to Divide Inventories into Sub-accounts
Originally published: 26/09/2018 09:28
Publication number: ELQ-57524-1
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How to Divide Inventories into Sub-accounts

This video excellently explains how an inventory is to be classified into different sub-accounts

accountsbalance sheetsfinished goodsinventoryproductionraw materialssub-accountswork in process

Description
Normally when we see a company’s balance sheet we’ll see that the inventory account is actually subdivided into three sub accounts, which are actually raw materials, work in process, and finished goods – which are the basis for this presentation.

I have an example, it’s actually Google. I’ve got one of their logos here to kind of illustrate that we’re talking about Google. It’s actually Google+. I think Mark Zuckerberg is very worried about Google+ overthrowing Facebook as the lead social media tool out there. Not really, but I do have their fourth quarter results and it is one note out of their entire financial statements that includes their inventories.

As you can see here, raw materials, work in process and finished goods are listed. The only difference is that raw materials and work in process are grouped together. And I’m going to guess that this is because one of the two accounts is immaterial. So, the account is too small to impact the user’s decision, so it was grouped up with another similar account to actually combine both of them and comply with the cost-benefit principle, so not including any irrelevant and immaterial figures on the financial statements. Normally we’ll go raw materials, work in process and then finish goods, and then have total inventory at the end.

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