{"id":11369,"date":"2021-04-13T05:06:08","date_gmt":"2021-04-13T09:06:08","guid":{"rendered":"https:\/\/www.certitrek.com\/nlpa\/?page_id=11369"},"modified":"2021-09-28T10:50:26","modified_gmt":"2021-09-28T14:50:26","slug":"impact-of-inventory","status":"publish","type":"page","link":"https:\/\/www.certitrek.com\/nlpa\/news\/purchasing-articles\/impact-of-inventory\/","title":{"rendered":"Impact of Inventory"},"content":{"rendered":"

The Impact of Inventory on the Balance Sheet<\/h3><\/div><\/div><\/div>

PurchTips edition #455<\/p>\n<\/div>

The impact of Inventory on the Balance Sheet:
\nBe Aware!<\/p><\/h4><\/div><\/div><\/div>

\"\"<\/p>\n

There is so much to know about accounting that it would be easy to get carried away and not have the time or space to talk about the other inventory management topics that we need to cover. For those who want to learn all the details of inventory accounting and other aspects of finance that affect procurement, you could enroll in our course Finance for Strategic Procurement, Part I.<\/p>\n

For this accounting discussion, there are two financial statements we will discuss:<\/p>\n

    \n
  1. The Balance Sheet<\/li>\n
  2. The Income Statement.<\/li>\n<\/ol>\n

    The balance sheet lists everything a company owns (assets), what it owes (liabilities), and the monetary difference between the two (equity). It represents a \u201csnapshot\u201d of a company\u2019s finances at a specific moment in time. Inventory is considered an asset on a balance sheet and is included as a number representing its monetary value. See Table 1 for an example balance sheet.<\/p>\n

    Table 1: Balance Sheet \u2013 All numbers in thousands<\/h4>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
    Assets<\/strong><\/td>\n<\/tr>\n
    Current Assets<\/td>\n<\/td>\n<\/tr>\n
    Cash and Cash Equivalents<\/td>\n1,204,000<\/td>\n<\/tr>\n
    Net Receivables<\/td>\n1,144,000<\/td>\n<\/tr>\n
    Inventory<\/td>\n354,000<\/td>\n<\/tr>\n
    Other Current Assets<\/td>\n70,000<\/td>\n<\/tr>\n
    \n

    Total Current Assets<\/h4>\n<\/td>\n

    		\n

    2,772,000<\/h4>\n<\/td>\n<\/tr>\n

    Long Term Investments<\/td>\n224,000<\/td>\n<\/tr>\n
    Property Plant and Equipment<\/td>\n2,162,000<\/td>\n<\/tr>\n
    Other Assets<\/td>\n56,000<\/td>\n<\/tr>\n
    Deferred Long Term Asset Charges<\/td>\n34,000<\/td>\n<\/tr>\n
    \n

    Total Assets<\/h4>\n<\/td>\n

    		\n

    5,248,000<\/h4>\n<\/td>\n<\/tr>\n

    Liabilities<\/strong><\/td>\n<\/td>\n<\/tr>\n
    Current Liabilities<\/td>\n<\/td>\n<\/tr>\n
    Accounts Payable<\/td>\n1,479,000<\/td>\n<\/tr>\n
    Short\/Current Long-Term Debt<\/td>\n2,697,000<\/td>\n<\/tr>\n
    Other Current Liabilities<\/td>\n95,000<\/td>\n<\/tr>\n
    \n

    Total Current Liabilities<\/h4>\n<\/td>\n

    		\n

    4,271,000<\/h4>\n<\/td>\n<\/tr>\n

    Long Term Debt<\/td>\n122,000<\/td>\n<\/tr>\n
    Other Liabilities<\/td>\n1,293,000<\/td>\n<\/tr>\n
    Deferred Long Term Liability Charges<\/td>\n185,000<\/td>\n<\/tr>\n
    Minority Interest<\/td>\n264,000<\/td>\n<\/tr>\n
    \n

    Total Liabilities<\/h4>\n<\/td>\n

    		\n

    6,135,000<\/h4>\n<\/td>\n<\/tr>\n

    <\/td>\n<\/td>\n<\/tr>\n
    Common Stock<\/td>\n131,000<\/td>\n<\/tr>\n
    Retained Earnings<\/td>\n(4,704,000)<\/td>\n<\/tr>\n
    Capital Surplus<\/td>\n3,407,000<\/td>\n<\/tr>\n
    Other Stockholder Equity<\/td>\n279,000<\/td>\n<\/tr>\n
    \n

    Total Stockholder Equity<\/h4>\n<\/td>\n

    		\n

    (887,000)<\/h4>\n<\/td>\n<\/tr>\n

    \n

    Total Liabilities & Equity<\/h4>\n<\/td>\n

    		\n

    5,248,000<\/h4>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

    The\u00a0value of the inventory\u00a0goes up when inventory is received and goes down when a sale takes place where the sale involves transferring ownership and possession of inventory. So, if a retailer-bought an iPad for $400, the inventory value would increase by $400. When the retailer sells that iPad for $499, the inventory value would decrease by $400 (that\u2019s the amount paid by the retailer, not the amount the end customer pays the retailer). For the purposes of this course, you will just need to know that a similar accounting approach is used for raw materials, work-in-process, and finished goods inventory. However, the accounting process works a little differently for consumable inventory.<\/p>\n

    NLPA Library:<\/strong>\u00a0Looking for authoritative\u00a0procurement templates, tools, webinars<\/strong><\/a>, and more? Stop trying to create resources from scratch and start taking advantage of having exactly what you need right at your fingertips in the\u00a0NLPA Library<\/strong>.<\/p>\n<\/div><\/div><\/div><\/div><\/div>

    Want A More Rewarding Procurement Career?<\/h5><\/div>
    <\/span><\/div>

    Are you tired of not getting enough opportunities, respect, and money out of your procurement career? Nothing will change unless you take action towards becoming a world-class procurement professional. Work your way up NLPA\u2019s CPO Suite Programs, an enhanced version of our SPSM certifications and bring the most modern procurement practices into your organization and achieve your career potential.<\/p>\n

    Download our NLPA Course Catalog<\/strong> for a comprehensive list of the CPO Certification Programs and their corresponding modules per level.<\/p>\n<\/div>

    Download<\/span><\/a><\/div>