Accounting·Final accounts & financial statements · NSSCO 1.1
Why we adjust & valuing closing inventory
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Before we can draw up final accounts, we must ADJUST some figures so each year carries exactly its own income and expenses. This lesson explains why adjustments are needed (accrual/matching and prudence), how to value closing inventory at the lower of cost or net realisable value, and the four principles that guide every set of financial statements — going concern, consistency, accrual/matching and prudence.
What you'll learn in this lesson
By the end you should be able to (NSSCO Accounting 1.1):
- Explain the need for adjustments (using accrual/matching and prudence principles)
- Explain how the closing inventory is valued (lower of cost or net realisable value)
- Discuss the importance of the going concern, consistency, accrual/matching and prudence principles in preparing financial statements
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