Inventory Research Paper

Matt Johnson

ACCT-311

Professor Ishaug

Inventory Research Paper

As stated in the title, this research paper will explore how oil and gas companies account for their as of recently enormous supplies of inventory. To start off simple, Inventory is defined by the codification as “An inventory has financial significance because revenues may be obtained from its sale, or from the sale of the goods or services in the production of which it is used. Normally such revenues arise in a continuous repetitive process or cycle of operations in which goods are acquired, created, and sold, and further goods are acquired for additional sales” (330-10-05-02). Someone new to accounting may ask what the purpose of inventory is to an accountant, the codification states “A major objective of accounting for inventories is the proper determination of income through the process of matching appropriate costs against revenues” (360-10-10-1). When you own a small business inventory seems like a simple task, but when your small business grows into a massive oil empire which pumps out 5.3 million barrels of inventory a day, then inventory can become a much more complicated matter.

When inventory becomes complicated like this it is important to determine a uniform accounting method to track your inventory and to keep it consistent “While the basis of stating inventories does not affect the overall gain or loss on the ultimate disposition of inventory items, any inconsistency in the selection or employment of a basis may improperly affect the periodic amounts of income or loss. Because of the common use and importance of periodic statements, a procedure adopted for the treatment of inventory items shall be consistently applied in order that the results reported may be fairly allocated between years”(330-10-30-15). There are a few methods to choose from for accounting your inventory which include “Cost for inventory purposes may be determined under any one of several assumptions as to the...