Acca financial Accounting (FA) Study Text ac ca (FA)

 Further explanation of inventory matching 

 

The carrying forward of unused inventory is the application of the 

matching concept. This is an extension of the accruals concept. Inventory 

costs are matched to the revenues they help generate. 

 

 

Illustration 1 – Gross profit calculation 

 

At the beginning of the financial year a business has $1,500 of inventory 

left over from the preceding accounting period. During the year it 

purchases additional goods costing $21,000 and make sales totalling 

$25,000. At the end of the year there are $3,000 of goods left that have 

not been sold