中美会计差异=Inventory

Inventory
A.Inventory Accounting
Similarities
U.S. GAAP is similar to PRC GAAP in many aspects:
a)The definitions of inventory are the same –the raw materials, work-in-process goods and
completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale.
b)Share some of the same methods of determining the cost of inventories. FIFO (First-in,
first out), weighed average method, moving weighed average method and specific identification method are used to determine the cost by both of the countries. (Detail discussions see differences part)
Differences
a)In U.S., inventories should be stated at the LCM method, which stands for
lower-of-cost-or-market. And market value is the lower of replacement cost and net
realizable value minus normal profit margin. In PRC, inventories should be stated at the
lower of cost and net realizable value. (Net realizable value is the estimated selling price
less the estimated costs of completion and sale).
b)In U.S., write-down for LCM is recorded in cost of goods sold .While in PRC, LCM
provision is recorded in General and Administration expenses.
c)In U.S., reversal of inventory write-downs is prohibited, while in PRC, reversal of
inventory write-down is required if certain criteria are met. For example, the write downs
should be reversed if the factors that caused the decline in inventories’ prices disappear.
However, if the value of inventories increases not because of the above reason but for
some newly-appeared reasons, the write downs are not to be reversed.
d)As for the methods of determining the cost, in U.S, in addition to the methods used in PRC,
the cost of inventory can also be determined using the LIFO method. What’s more, the
retail method is allowed in U.S. but not allowed in PRC accounting regulations. The retail
price is the price at which the goods are sold to the customers, thus the method of retail
inventory is thus, a valuation of stock according to its retail value. One thing to notice that
this method is generally used in sales organization where the basic business model is
based on the activity of purchase and sale of goods. One cannot use this method for
production-based business models.
B.Periodic Inventory System
Similarities
Under periodic inventory system, both PRC and U.S shall not record the cost of goods sold when sales conducted. Usually, the inventory accounts only reflect the amount at the beginning of the period and the ending inventory balance is determined by physical account. The cost of goods sold is calculated by down packing.
Differences
a)For inventory recording, in order to record the purchases of merchandise, the account of
"Purchase", "Purchase returns and allowan ces”, “purchase discounts, “purchase freight
accounts” is set respectively in U.S., while in China, the purchases are only recorded by
debit the “stock merchandise " and " raw materials "account.
b)The second difference lies in the area of inventory purchase returns, discounts, cash
discounts, and freight in fees. Give more details, if there is a refund or a discount on
inventory purchased, in U.S., the company should directly credit the "purchase returns
and allowances" account, while in China the company should credit "stock
account. What’s more, i f there are cash discounts, the U.S. accountant should credit the
"cash discount" and write down the "accounts payable" at the same time, while in China,
the accountant should credit the "financial expenses" account and offset against payables.
Last, if the purchaser bears the shipping costs (for example FOB shipping point), in U.S.
the "purchases freight” account will be debited, while in China the "operating expenses"
account will be debited.
c)The third difference under periodic system is whether or not to prepare adjusting entries
the end of each period on the calculation of the cost of goods sold. In China, both
"Financial expenses" (cash discount) and “operating expenses” (buyer should bear the
freight) accounts are a “gain or loss” category account, which is directly credited to the
current profit for the year, so at the end of the period, it is no need to do the adjusting
entries. Under the periodic inventory system, The U.S sets the "purchases" account,
adding "purchases allowances”, “discounts” and additi onal account, thus two adjusting
entries are need to calculate the cost of sales of inventories.
C.P erpetual Inventory System
Differences
The difference under perpetual inventory system is the treatment of inventory checks. Under perpetual inventory system, the gain or loss of inventory should be recorded in every sell or purchase, thus to ensure the accounts match the reality, both of the countries need to do the physical check, and use the account entries to adjust.
In China, if there is a gap between the booking amount and the physical amount, a company should record the gap using the "P/L for assets taking" account. Which means, when the loss (or profit) in the first place, the company should first debit (or credit) the "P/L for taking" account, then when the company find out the cause of that loss (or profit), it record in different accounts. For example, if the loss was caused by nature disaster, the company should debit the "non-business expenditure", and credit the "P/L for assets taking".
However, the accounting treatment on this issue is much simpler in U.S., since there is no to go through the "P/L for assets taking" account, instead of directly recorded the inventory differences in the "Inventory gain or loss" account. That is, when there is a loss (or profit) in inventory, the company should debit (or credit) the "inventory loss/ gain" account.。