ACCOUNTING

Holding Gains or Losses



Holding Gains or Losses

Introduction

Holding Assets or Liabilities could either be benefitial for the company or it could also bring problems for the company. It depends upon the price of assets or liabilities and the usage of these assets or liabilities. In this paper, we will analyze the advantages and disadvantages of holding assets for long duration. In order to understand the advantages and disadvantages of the holding inventory, we must assess the need of holding the inventory.

Discussion

If a company holds inventory, it is very possible that its prices increase in the future, which will increase the price of the final goods sold. In this way, company can earn greater profits as the cost at which the company purchased goods and services is lower. On the other hand, it is also possible that the cost of maintenance and holding inventory is very high, and the company may have to incur higher cost for holding inventory for longer time period (Van Horne et.al, 2008, p.232). The prices of the goods or inventory held may also decline, which could negative Effect Company's profit.

Accounting for inventories is very important part for the accounting of goods, because the sale of inventory is the heart of the business. The inventory is usually the largest asset on their balance sheets, and inventory expenses, called cost of goods sold, and are usually the major expense in the income statement.

Firms engaged in buying and selling of goods, as this is their main role and will give rise to all the other operations (Meyers, 1997, pp. 87-94). There is a constant need to summarize and analyze information on their inventories, which requires the opening of a number of main and auxiliary accounts related to those controls. These accounts can name the following:

Inventory (initial)

The Initial Inventory represents the value of stocks of goods on the date that began the reporting period. This account is opened when the control of inventory in the General Staff, and is based on the speculative method, and will no longer have movement until the end of the accounting period when it closed under cost of sales or by Profit and Loss directly.

Shopping

The Purchases account includes goods purchased during the accounting period in order to resell them for profit and which are part of the purpose for which the company was created. Not included in this account are to purchase land, machinery, buildings, equipment, facilities, etc. This account has a debit balance and does not fall on the balance sheet of the company, and closed by Profit and Loss or Cost of Sales.

Purchase Returns

Returns on sales, refers to the account that is created to reflect all that the company purchased merchandise returned for any reason. Although this decrease has the purchase of goods that shall be paid to the account purchases (Lewellen, et.al, 2009, p.64).

Expenditure on Purchases

The costs for purchases of goods must include in the account titled Purchasing Expenses. This account has a debit balance and it is not ...