Accounting

Author: Liu Dongrong Compiler/Nationality:
Publisher:
Publishing Time: 2003-09-01
Features: Considering the advantages and disadvantages of the perpetual inventory system and the periodic inventory system, enterprises can implement the perpetual inventory system for some inventory categories and the periodic inventory system for others based on inventory classification and management requirements. Regardless of the method used, consistency should be maintained across periods.
II. Cost Measurement of Inventory Acquired Through Different Methods
In theory, there are two main categories of inventory valuation bases: input value and output value. Under input value valuation, inventory can be recorded at historical cost, cost or market value whichever is lower, current cost, or standard cost. If output value is used for valuation, inventory should be recorded at current selling price or net realizable value. However, the most commonly used recording basis in practice is historical cost. China's "Accounting Standards for Business Enterprises" Article 28 and "Accounting System for Business Enterprises" Article 20 both stipulate that inventory should be recorded at actual cost upon acquisition. The actual cost is determined as follows:
(1) For purchased inventory, the actual cost includes the purchase price plus transportation fees, loading and unloading fees, insurance fees, packaging fees, warehousing fees, reasonable losses during transportation, pre-inventory selection and processing fees, and other taxes and expenses that should be included in the cost according to regulations. For commercial enterprises, the actual cost of purchased goods is determined based on the purchase price and taxes that should be included in the cost of goods, while transportation fees, loading and unloading fees, insurance fees, packaging fees, warehousing fees, reasonable losses during transportation, and pre-inventory selection and processing fees are directly recorded as current period expenses.
When measuring the cost of externally purchased inventory, we need to pay attention to the following issues:
① Purchase price and cash discount. Generally, the purchase price of all inventory is confirmed based on the invoice amount; however, in some cases, the invoice price may differ from the actual payment. This occurs because, in a developed market economy, most commodity transactions are conducted on credit, meaning through trade credit transactions. Under credit sales, there is usually a fixed credit period, which leads to cash discounts on purchases. There are two main methods for handling cash discounts: the gross price method and the net price method.
The gross price method considers the actual purchase cost of inventory to be based on the invoice price, while the cash discount obtained is treated as a financial benefit resulting from financial management, which can offset the current period's financial expenses. In other words, under the gross price method, inventory accounts and accounts payable are recorded at the invoice price before cash discounts are deducted, and the cash discount received is offset against the current period's financial expenses, while the cash discount not received is not recorded.
The net price method, on the other hand, takes the net amount after deducting the maximum cash discount from the invoice price as the actual purchase cost. The cash discount lost due to not paying within the discount period is treated as a financial expense, reflecting the lack of financial flexibility. In other words, under the net price method, inventory accounts and accounts payable are recorded at the net amount after deducting the maximum cash discount, and the cash discount received is not recorded, while the cash discount not received is recorded as a current period financial expense.
The main difference between these two methods lies in: the gross price method accurately reflects the benefits obtained through financial management (as shown by a reduction in financial expenses) but fails to reflect losses due to financial management issues (i.e., discounts not obtained). The net price method provides information on the loss of purchase discounts due to poor fund allocation or insufficient financial flexibility (as shown by an increase in financial expenses) but fails to reflect the benefits obtained through financial management (i.e., discounts received). These quantifiable pieces of information are of great value for strengthening enterprise management, adjusting enterprise budgets, and improving financial work. Therefore, from the perspective of accounting control, the net price method is more preferable. However, China currently adopts the gross price method.
It should be noted that the scope of cash discounts is limited to the untaxed price of goods and does not involve value-added tax calculated based on the price. In other words, regardless of when the payment is made or which accounting method is used to handle cash discounts, value-added tax must be calculated and paid in full.
② Incidental costs. Incidental costs refer to various expenses that a business must pay before inventory is put into storage, including taxes related to the purchase of inventory, packaging fees, transportation fees, insurance fees, and storage fees incurred during transportation and storage. Specifically, incidental costs can be divided into two parts: one is the costs incurred before the purchase of inventory is put into storage, such as packaging fees, transportation fees, insurance fees, and taxes; the other is the storage and management fees incurred after the inventory is put into storage but before it is issued. In theory, all incidental costs should be included in the cost of inventory, but in practice, it is often difficult to implement. Therefore, it should be determined based on the specific circumstances of the enterprise and the importance of the incidental costs whether they should be included in the cost of inventory.
China's "Accounting Standards for Business Enterprises" stipulates that incidental costs incurred by commercial enterprises in purchasing goods are generally not included in the cost of inventory but are treated as circulation expenses and directly recorded as current period expenses. For manufacturing enterprises, costs incurred before externally purchased inventory is put into storage, such as packaging fees, transportation fees, and selection and management fees, are generally directly recorded as the cost of the relevant inventory (however, urban transportation fees are usually recorded as current period expenses due to their small amount), while storage fees are directly recorded as management expenses and not included in the cost of the relevant inventory.
③ Taxes. In commodity transactions, traders must pay turnover taxes. Whether the turnover tax paid is included in the price, China currently adopts two methods: one is the price-inclusive tax, where the price includes turnover taxes such as consumption tax, resource tax, and urban maintenance and construction tax; the other is the price-exclusive tax, such as value-added tax. In addition, when importing goods from abroad, customs duties must be paid. Therefore, reasonably determining which taxes should be included in the cost of purchased goods is an important issue for accurately calculating the cost of enterprise inventory.
II. Measurement of Fixed Assets
The accounting for fixed assets requires enterprises to calculate and reflect both the physical quantity and the monetary measurement unit of fixed assets. Calculating the value of fixed assets in monetary terms is known as the measurement of fixed assets. Since fixed assets account for a significant proportion of a company's total assets, the accuracy and rationality of fixed asset measurement are crucial for organizing fixed asset accounting, correctly calculating depreciation, and accurately reflecting the company's assets and financial status.
There are three measurement points for fixed assets: initial measurement, depreciation measurement, and end-of-period measurement. Here, only the methods and content of initial measurement are introduced.
1. Methods of Measuring Fixed Assets
(1) Original Cost (Historical Cost). Original cost, also known as historical cost, refers to the total amount paid by the enterprise to acquire a particular fixed asset and all reasonable and necessary expenses incurred before the asset reaches its expected usable condition. When analyzing whether each expense should be included in the original cost of fixed assets, it is essential to focus on whether each expense is necessary and reasonable. For example, the installation cost of a machine is an indispensable expense to bring the machine to a usable state and should be part of the machine's original cost. However, if the machine is damaged due to negligence during installation, the repair costs paid should not be included in the machine's original cost.
Another example is the borrowing costs of fixed assets. Borrowing costs incurred before the fixed asset reaches its expected usable condition should be included in the original cost of fixed assets, while those incurred after should not be included. The valuation of newly purchased or constructed fixed assets, as well as the basis for determining depreciation, all adopt this method. The values determined under this method are actual expenditures with supporting payment evidence, making them objective and verifiable. It is the basic method of valuation for fixed assets, and in China's accounting practice, the valuation of fixed assets is based on historical cost.
(2) Replacement Cost (Replacement Full Value). Replacement cost, also known as replacement full value, refers to the total expenditure required to purchase or construct the same fixed asset under the current production and technology conditions. In practice, replacement cost is also considered as original cost. Under the historical cost principle, fixed assets are recorded at original cost after being recorded, and in most cases, they are not revalued based on their replacement value. There are four reasons for using replacement cost to value fixed assets: replacement cost is an effective way to adjust the book value of fixed assets based on price changes, and the adjusted value is close to its liquidation value, i.e., its true economic value; replacement cost is an approximate measure of the current value of the future benefits of fixed assets; depreciation based on replacement cost can reflect the benefits of assets consumed so far; and accumulated depreciation based on replacement cost can ensure the physical renewal of fixed assets.