Understanding Inventory, Accounting Events, and Financial Performance

Posted on Feb 16, 2025 in Business Administration and Innovation Management

Understanding Inventory and Accounting Events

Inventory: The detailed value of all assets, rights, and obligations that constitute the assets of a company at any given time.

Types of Inventory

  • By Compulsion:
    • Mandatory: Arises by legal imposition.
    • Voluntary: Made by the company based on its needs.
  • By Length:
    • Total: Includes all assets of the company.
    • Partial: Includes only a certain part of the assets.
  • By Origin of Information:
    • Accountant: Obtained from data contained in accounting records.
    • Non-accounting: Derived from physical counts.
  • By Cause:
    • Regular: Held periodically.
    • Extraordinary: Realized circumstantially (e.g., for a merger).
  • By Time of Completion:
    • Home: Performed early in the life of the company.
    • Development: Realized during the course of the enterprise’s life.
    • Final: When the company completes its activity.

Key Performance Indicators (KPIs)

  1. WFP (Work in Progress): 365 / n =
    Average Stock Level
    Annual Consumption of Raw Materials
  2. PMF (Production Manufacturing Factor): 365/nf =
    Average Stock in Progress
    Annual Consumption of Manufacturing
  3. PMV (Production Manufacturing Value): 365 / nv =
    Average Level of Stocks of Finished Goods
    Annual Sales Volume at Price
  4. MPC (Marginal Propensity to Consume): 365 / nc =
    Customer Balance
    Annual Sales at Selling Price

Accounting Events and Their Classification

Overall Technical Performance of Accounts: Accounting events.

Through the accounts, all the phenomenology of the company is represented in its static and dynamic aspects. Let’s analyze, from a dynamic point of view, the alterations that occur in the composition of the assets of the company following the management process. These economic changes are called economic facts: any legal or economic event that can be represented accounting insofar as it affects the assets of the economic unit. Its representation is performed through so-called accounting facts (e.g., purchase of goods).

Accounting events can be classified into 3 groups: permutations, amending, and mixed, to be defined differently depending on the interpretation under consideration. There are 2 interpretations or conceptions of accounting events: the classical conception and the economic conception.

Classical Interpretation

The classical interpretation takes the net worth of the company as a benchmark for the classification of accounting events. It considers whether the various economic changes affecting the net worth quantitatively generate business one way or another.

  • Permutational Facts: Those that do not alter quantitatively the net worth, although they may do so qualitatively.
  • Amending Facts: Those that quantitatively alter the net worth, so that it will be affected in amount.
  • Mixed Events: Those consisting of one exchangeable and one amending event.

Economic Interpretation

The economic interpretation takes the extent of economic and financial structures of the company as a benchmark for the classification of accounting events. It considers whether different economic changes quantitatively affect the economic and financial structures of the company, i.e., whether they increase or decrease. From this point of view:

  • Permutations: Those facts that do not alter the extent of economic and financial structures of the company, but they can do it qualitatively, i.e., the structures do not increase or decrease, but their composition may have changed.
  • Amending Acts: Those that alter the extent of economic and financial structures of the company. In this case, both structures have been affected in their measurement.
  • Mixed Facts: Those in which we have both a permutational and an amending fact.

Thus, we see that there are only 9 accounting events both in one conception and in the other, and could not be otherwise given the very laws of the accounting technique. For example, it would be invalid to reflect an accounting event in two accounts (two in the must). This means that, considering these combinations, if we take them all, we eliminate the fundamental equation and the negative signs.