Inventory Valuation - Liabilities Plus Owner’s Equity Equals Assets

Week Two Objectives Recap

Liabilities plus Owner’s Equity equals Assets, this asset sector is the main focus when it comes to inventory and fixed assets valuation. There are many methods for valuating inventory and fixed assets as there are many types sub categories as well as needs specific to the industry. This is why it is important to know how inventory valuation is presented on the balance sheet and income statement. Furthermore, capitalizing fixed assets will be dissected to get to the root meaning and to find how it is presented on the balance sheet and income statement.

Inventory valuation is important to the presentation of the balance sheet and the income statement

When it comes to Inventory and its valuation, how your company decides to choose its methods can all greatly impact the balance sheet and income statement. In stating this we need to look at why this is important to their presentation? Taking a look at the Balance sheet, Inventory can frequently be known to be the most significant current asset for companies involved. When talking about the Income statement for a particular period, Inventory Valuation is vital in configuring the results in operations. It is also very important that ending inventory is not over or understated. We come to this conclusion for the fact that for example, if ending inventory is understated than the current ratio and working capital is then understated affecting the presentation of the balance sheet.

Capitalizing fixed assets and how that affect the balance sheet and the income statement

Fixed assets are defined as a company’s property, plant and equipment that they hold. The characteristics of this are 1) they are used for operations and not for resale 2) they are long term investments and are subject to depreciation and 3) they are physical in substance. The capitalizing of