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by AntigoneRising on April 8th, 2009
A decrease in any area of the accounting equation is a decrease on the other side (and probably several other debits and credits). It has been quite a while since I've taken accounting, but I do not think it is an increase in expense. As best I can remember, I believe it is encapsulated in the "capital" area of the equation and ledgers.
If inventory was initially ovestated, it will represent a loss in the final balance sheet when compared to the previous (unadjusted) balance sheet. It should show as a loss because of the decreased capital.
by Rocket on April 8th, 2009
Not necessarily... it could be an increase in sales...
by CaptainHarley adores his life penguin on April 8th, 2009
No. It could mean a decrease in purchasing, an increase in sales, or several other things.
by 232499 on April 8th, 2009
Perhaps they implimented JIT
by tritri on April 19th, 2009
When dealing with accounting, it can be considered an increase in sales; however, when you consider other aspects, it can turn tricky. If the company isn't making purchases for future inventory, this could represent a loss in future sales.
For example, if you had 100 shirts, and sold 70...you now have a decrease in inventory and an increase in sales. If you dare not order more and only keep your 30 shirts to sale and you have 40 people wanting to buy a shirt, you just lost sale revenue on those 10 shirts you don't have in stock. In that case, the decrease in inventory caused a loss on sales.
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Comments
Excellent - that is exactly what I needed to know!
Thanks
by Ms. Tree on April 8th, 2009