Can you expense inventory as soon as it is received even though it is still setting on the shelf and has not been used? What happens at the end of the year when the my MRP system states I have a millon dollars worth of inventory? Is this legal?

CaptainForest

You can't expense inventory until you have sold it.

At the end of the year, it says you have 1 million in inventory. Do you? I don't see the problem. Yes it is legal. Heck, you could have 100 million in inventory.

dyancey

Thank you for the reply. I'm sorry I did not make myself clear on this issue. My inventory is MRO supplies & high dollar maintenance items/parts. It is my understanding that we are expensing it as soon as it is received, even though it has not been issued or put on the machine. My legal question is, I have a million dollars worth of inventory that has been expensed but is still on the shelves. You responded that a company can not expense inventory until it is sold, I would think the same holds true for maintenance inventory as well. So my question is if we have already expensed it & still have it on the shelve is that legal?

CaptainForest

From the sounds of it, no it is not.

You cannot expense your supplies (maintenance replacement parts) until you actually use them.

If your company has an auditor come in, he/she would most likely find this out.

However, you shouldn’t be doing this.