Inventory Accounting at Wal Mart Stores.

Essay by kanpaiUniversity, Master's November 2006

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From the annual reports we can conclude that Wal-Mart operates its stores as mass discount retailers, carrying between 60,000 and 90,000 different merchandise items in each store. Wal-Mart purchases more than $22 billion in merchandise, turning its inventory over as often as 4.5 times per year. Sam Club carries between 3,500 and 5,000 different merchandise items, acquiring more than $2.6 billion in merchandise. Wal Marts operations grew from 2003 to 2005. For example, the number of Wal-Mart stores increased and the number of Sam's stores increased. WalMart utilized an extensive distribution and tracking system to maintain optimal inventories at each store. They use the retail last-in, first-out (LIFO) inventory accounting method for the Wal-Mart Stores segment, cost LIFO for the SAM'S CLUB segment.

For both financial reporting and tax purposes, Wal Mart used the accrual method of accounting and maintained a perpetual inventory system. Under the perpetual inventory system, the cost or quantity of goods sold or purchased is contemporaneously recorded at the time of sale or purchase.

The system continuously shows the cost or quantity of goods that should be on hand at any given time. WalMart performed physical inventories to confirm the accuracy of the inventory as stated in the books, and made adjustments to the books to reconcile the book inventory with the physical inventory.

WalMart's physical inventories were taken at its stores in rotation throughout the year. They did not take physical inventories during the holiday season (November, December, and the first week of January). WalMart refers to this technique, which is common in the retail industry, as cycle counting. Cycle counting is necessitated by the difficulty in conducting physical inventories at every store on the last day of the year. This technique also provides management with feedback on the effectiveness of its inventory management and...