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When inventories go down in value, accountants adjust the value of the inventory that is recorded...

When inventories go down in value, accountants adjust the value of the inventory that is recorded on the balance sheet. Sometimes inventory goes up in value. Do accountant's ever adjust the value of inventory upwards? What are the general guidelines that accountant's follow in recording inventory value?

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Answer #1

As per the concept of conservatism laid down in GAAP. The accountant must not anticipate any gains but provide for all possible losses that may occur in future within the current records. This is the primary reason that accountant records a decline in the value of inventory while he does not record any anticipated gain in the value of inventory until the same is realized. This is done to make sure that users of financial statements gets a fair view of the losses that company may incur in future. The concept of conservatism is laid in GAAP, this was created to make sure that financial statements do not show any unrealized profit but records all possible losses that may incur. Hence, accountant usually do revise the value of inventory upwards until the same is realized.

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