Just some food for thought

After all, we are financial proffesionals (at least some of us) anyways, for a pay-commitment obligations, for the sake of the test, it is added to plant and equipment under assets. This is how I have seen it done in repeated sample questions. The reality is that if it is a component of inventory (raw materials), then it should then the adjustment should go into inventory. It would be very easy for a company to make their inventory turnover appear to be much better than it is (a pretty important ratio for analyzing operations). Let’s say that I am a factory and my raw inventory generally consists of 11 tons of steel, but now you keep 1 ton in inventory and agree to take delivery just once a month for the needed amount but are committed to the 10 tons for the year, then in essence you have 11 tons of inventory, just stored elsewhere. It’s not really JIT inventory because at the end of the day, those 10 tons have become a liability and not related to the actual production.