Asset Valuation Essay

1860 words - 7 pages

IntroductionAt the urging of a long time desire, Barbara Jones and Rachel Hoskins recently decided to open their very own purse store, which will be called Purse Bouquet and Fashion. Barbara and Rachel who both have a passion for fine purses and accessories, will sell luxury handbags, purses, backpacks, luggage and other exquisite items to the Greater Baltimore Maryland area via their luxury boutique store and the Internet. Upon the establishment of their newly start-up retail company, they have decided to sell the following brands; Samsonite, Jansport, Liz Claiborne, Fendi, Gucci, and Coach. The good thing about Barbara and Rachel is that they both have an incredible knowledge about their products and how to make a sale. However, their accounting experience is very limited. They have trained staff members in place that will provide them service based on their expertise, which will ensure that their financial office has full coverage. Our accounting firm, Value Builder Inc, has provide assistance in making sure that the Inventory, Capitalization and justification policies are created and instituted before the establishment of their retail store.PBF Inventory PolicyInventories can be defined as assets that are intended for sale, are in process of being produced for sale, or are to be used in producing goods. (http://www.investopedia.com/article/02/060502.asp)For many companies inventory represents the largest portion of assets, because inventory is an important part of a company's balance sheet. A company's inventory is determined by the following equation, Beginning inventory + Net purchases - Cost of goods sold = Ending inventory. To simplify this equation, it means that you take what the company has in the beginning, add the new purchases, subtract what the company sold and the result is what is left.Purse Bouquet & Fashions has inventory that is intended for sale. The company's inventory includes a variety of items such as purses, wallets, backpacks, messenger bags and luggage, from popular brand names such as Samsonite, JanSport, North Face, Liz Claiborne, Fendi, Coach and Gucci.There are many types of inventories such as raw material, work in process and finished goods, but Purse Bouquet & Fashions uses only the finished goods inventory. According to Hadley (2004) effective inventory management is critical to overall corporate performance. The finish goods inventory system provides management with the tools necessary to manage the flow to order and stock items, with complete products that will be delivered to customers. Finished goods inventory is divided into three major areas. The first area provides a perpetual inventory, by maintaining inventory balances through processing of transactions, for example receipts and withdrawals. The second area provides the store manager with the dollar values and analysis requires for good inventory decisions. The final area allows purchase orders to be tracked effectively.The accounting method a...

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