How can you dispose of obsolete stock?

• Decision-makers often have a difficulty disposing of dead inventory because it will adversely
impact the balance sheet and deplete resources considered valuable for lending purposes.
Obsolete stock can be disposed of in various approaches, they can sell it at net price,
temporarily raise commissions for salespeople, discount the price, return it to vendor, donate it,
write it off,
and auction. The best way to manage obsolete inventory is to prevent it from piling up in the
first place. Monitor what's selling well and don't automatically re-order products.

What is the economic order quantity used for?

• Economic order quantity is a technique used in inventory management to help make efficient
inventory management decisions. It refers to the optimal amount of inventory a company
should purchase in order to meet its demand while minimizing its holding and storage costs. It is
a
calculation companies perform that represents their ideal order size, allowing them to meet
demand without overspending. Inventory managers calculate EOQ to minimize holding costs and
excess inventory.

How does inventory impact the balance sheet?

• The balance sheet shows the financial position of a company on a specific date. It provides
details for the basic accounting equation: Assets= Liabilities + Equity. Inventory is an asset and
its ending balance is reported in the current asset section of a company's balance sheet , and
can be sold within one year. This information is used to calculate financial ratios that help
assess the
financial health of the company.

How can you assess inventory?

• There are three ratios that are useful when assessing inventory. First is current ratio, it
assesses the organization’s overall liquidity and indicates a company’s ability to meet its short-
term obligations, it indicates the amount of assets we have for each peso of liabilities that we
owe. Next is quick ratio or acid test, it compares the organization’s most liquid current assets
to its
current liabilities. Lastly is inventory turnover ratio, it measures on average, how many times
inventory is replaced over a period. Inventory turnover is an important measure since moving
inventory quickly directly impacts the company’s liquidity.

How does inventory impact the income statement?

• Inventory is recorded and reported on a company's balance sheet at its cost. When an inventory
item is sold, the item's cost is removed from inventory and the cost is reported on the
company's income statement as the cost of goods sold. The cost of goods sold on the income
statement represents the value of goods (inventory) sold during the accounting period.