A company that purchases from overseas receives the invoice before the goods. They use standard costing method and want to post into inventory upon receiving the invoice. Is this ok?


Generally, the variance measures the standard cost of an inventory item against the actual cost (i.e., the invoice) and the difference is recorded in a variance account. The variance account helps management isolate differences to see how efficiently they are operating. Standard costing is acceptable for valuing inventory as long as there is not a significant difference between actual and standard. If there is a significant difference, the inventory amounts should be adjusted to actual. You should seek the advice of your accounting/audit firm to determine what is a reasonable variance. A large difference is argued to result in a misstatement of your financial results in your income statement. Standard costs are usually adjusted at certain intervals to reflect current cost conditions of your inventory items.

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