Businesses that donate inventory to charity need to be aware of the tax laws rules for this type of charitable giving. /Type /Group 620 0 obj >> /F2 618 0 R >> << endobj Make sure that the expense account you selectfrom the Accountdropdown list in the Account details section is a dedicated expense account for tax-deductible contributions that isn't used for any other expenses, as this will make things easier for your accountant or tax preparer. /CS /DeviceRGB >> No. /CS /DeviceRGB Verify the credit memo was applied to the invoice. /F3 621 0 R 11 0 obj /Parent 4 0 R /MediaBox [0 0 612 792] 3 0 obj << >> /CS /DeviceRGB << /Resources /Footer /Sect endobj /A 616 0 R >> When you make a charitable contribution, you are spending money or moving inventory. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. /InlineShape /Sect Excess contributions are carried forward in each of the five succeeding tax years. CHAPTER 9 27 0 obj Create an invoice for the products or services you donated. /Tabs /S /Font /ProcSet [/PDF /Text /ImageB /ImageC /ImageI] If a corporation, other than a S corporation, makes a gift of inventory, property held for sale to customers in the ordinary course of business, or depreciable or real property used in the trade or business, it may deduct its basic for the property, plus one-half of the property's unrealized appreciation. Inspect the damaged inventory and prepare a damage report for each item thats broken. Read our cookie policy located at the bottom of our site for more information. /Contents 628 0 R >> /CS /DeviceRGB << /Tabs /S If your donation is notgoing to a registered charity (eg a local fundraiser or special event), the only entry you need is to move the COST value of the items from inventory to either a donations or advertising and promotions account. The basic rules in accounting for contributions are summarized below. Commerce, Analytics /Tabs /S WebWhen selling inventory and recording an accounts receivable, use an accounts receivable object code. /Group Get our FREE guide to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization's finances. In this case, the company would debit the general COGS account on the income statement and credit the inventory. /Contents 644 0 R /F1 619 0 R endobj /ProcSet [/PDF /Text /ImageB /ImageC /ImageI] /CS /DeviceRGB 15 0 obj /Parent 4 0 R Then, credit your They even have an. 619 0 obj /Encoding /WinAnsiEncoding Double-entry accounting is the process of recording transactions twice when they occur. /Resources /Tabs /S Please see www.pwc.com/structure for further details. /Tabs /S 33 0 obj /Contents 646 0 R /Tabs /S /Type /Page Any donations made in 2015 by non C corporations (such as S corporations and partnerships) are also eligible for the enhanced tax deduction. The donee or resource recipient is the party that receives those benefits. /Artifact /Sect /CS /DeviceRGB This content is copyright protected. endobj /MediaBox [0 0 612 792] The most common way to establish value for in-kind goods is to look for the average cost, or conservative estimate, of a generic line-item product at a high-volume retailer like Amazon or Walmart. /StructParents 24 32 0 obj << /F2 618 0 R When inventory decreases in value but doesnt lose all its worth, its written down. Usually a loss is considered immaterial if it amounts to less than 5% of total inventory on hand. Do Not Sell or Share My Personal Information (California). Why? This way I could do a quick report on the expense account giving me an easy list of all donations made. 6 0 obj Thank you for posting the sample quick report, and also for your advise on using the journal to record the transactions. /Count -4 /Font When inventory is written off, that process is acknowledging that the item no longer has economic value and will not provide future value to the company, thus rendering it an expense. When inventory value is totally eliminated, that loss is recorded in the contra account or cost of goods sold (COGS) accounting, depending on the significance of the write-off. /Resources /Tabs /S /Count 14 >> /Type /Page /Type /Font Under a special rule, a C corporation that donates inventory to a qualified charity that will use the donated items for the care of the ill, the needy, or infants may qualify for an enhanced (above-basis) deduction. Don't skip this step or your balances will be off after you perform the other steps in the process. 622 0 obj Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. Kahn, Litwin, Renza. endobj Some people are more likely to give if they know that their donation will go directly to helping others, rather than paying overhead costs or admin salaries. But accounting for in-kind donations presents its own unique challenges. . For this reason, inkind gifts are an invaluable tool in your fundraising toolkit. The Protecting Americans from Tax Hikes (PATH) Act of 2015 permanently extended and in some cases modified charitable deductions for the contribution of food inventory. << >> /Tabs /S /Type /Page /Length 3650 & Operational Security, Advertising and Step 3: Now, the particular Refund icon will be displayed. /Encoding /WinAnsiEncoding Relationship Management, Sales >> >> /MediaBox [0 0 612 792] Excerpt from ASC 958-605-25-2 /F1 619 0 R Monitoring, Application /CS /DeviceRGB >> << /F3 621 0 R /Type /Group If you don't already have an expense account for donations, you can selectAdd New from the dropdown list in theAccount column to add one when you record the donation. /Contents 627 0 R Does it have to be a 501(c)3? There are multiple types of charitable organizations in the 501(c) classification with the IRS and most can accept d /S /Transparency << The inventory write-down process will debit the COGS and credit inventory. /A 613 0 R We use cookies to personalize content and to provide you with an improved user experience. /F1 619 0 R Feeling stressed about creating yet another spreadsheet or template? >> February 21, 2023. << >> /StructParents 6 /Font /Contents 629 0 R /Last 11 0 R >> /F1 619 0 R >> << From tracking historical trends and predicting needed inventory to correctly recording inventory losses, inventory management software can reduce costs while improving efficiency. Sorry for that confusion. Do I create a bill for the hospital and treat them as a vendor also? endobj endobj /Group /MediaBox [0 0 612 792] >> >> /Contents 650 0 R << /Contents 639 0 R /Font 25 0 obj << /Tabs /S /F1 619 0 R The inventory can be virtually any property a business owns (other than money). /F2 618 0 R >> And inventory management software can help with each step of this process, along with the needed analysis to find and fix problem areas. >> /ParentTree 7 0 R /FirstChar 32 The key is to set a standard for obtaining fair market value for a type of good or service and be consistent in how you use and track that value. Contributions made shall be recognized as expenses in the period made and as decreases of assets or increases of liabilities depending on the form of the benefits given. No worries, Microsoft has a. 10 0 obj << << This transaction transfers the $100 from expenses to revenue, which finishes the inventory bookkeeping process for the item. /Type /Group /Contents 651 0 R /Group endobj /Type /StructElem /Tabs /S 2019 - 2023 PwC. Consider removing one of your current favorites in order to to add a new one. Rather than simply change the original entry, its a cleaner way of showing the reduction in value and can be useful for tracking historical costs. << >> Dont forget to check out our Year End Tax Planning Guides for Businesses and Individuals. /Parent 4 0 R /S /Transparency NOTE: You can only apply their professional legal services fee to skilled volunteer hours. /Font Additionally, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) enhances this deduction for contributions made during calendar year 2020see if you qualify. << /Last 615 0 R The election applies only for purposes of computing the enhanced deduction for food inventory. One of the biggest reasons to account for in-kind donations is because it helps you reflect the true impact your organization creates in the community. /Resources However, if I go back to the Customer Center, the grantee shows no transactions and a balance of zero. << >> /Type /Outlines Properly accounting for in-kind gifts increases your revenues and expenses by the same amount. >> Are you still working? /Annotation /Sect 38 0 obj Step 5: In the particular Pay to order section, press the customer. Youd ask your volunteer how much they would have charged you if they were being paid. This way I could do a quick report on the expense account giving me an easy list of all donations made. /Type /Group WebYou would debit cash in bank $180 plus 5% sales tax (insert the tax for your province here but I'll use 5% for this example) = $189 and credit deferred revenue $189. It doesn't, I cannot see any transactions listed there, even after setting the correct date filter. >> I set up a grantee as a Customer (type Donor) and I assigned a job number to match the individual Distribution Number our organization used to track our grants made. /MarkInfo Donors who are at the 10 percent cap on charitable contributions can now enjoy tax benefits for donated food up to 15 percent of their adjusted gross income. Create journal entry: Depending on the significance of the loss determined in the previous step, a business will either debit the COGS and credit inventory or debit the >> >> Looking to donate excess inventory to your favorite charitable organization? The amount that is deductible is the smaller of the donated inventorys fair market value on the day it is contributed or its basis. /MediaBox [0 0 612 792] << The IRS requires special documentation for certain charitable contributions. << /ProcSet [/PDF /Text /ImageB /ImageC /ImageI] 18 0 obj Force Automation, Configure, << << /CS /DeviceRGB << /CS /DeviceRGB 1 0 obj Generally Accepted Accounting Principles (GAAP) requires that inventory be written off as an expense as soon as it is determined to have lost all value. In order to qualify for the charitable deduction when inventory is donated, the contribution must be made to a qualified public charity or a private operating foundation, and the donee's use of the property must be for the care of infants, the ill or needy. >> /Type /Font Sorry I can't give you more than one thumbs-up. >> And the COGS is an accounting of all the indirect and direct costs that go into making a product. /FontDescriptor 657 0 R Unfortunately, the freezer breaks down and the meat spoils, rendering it unsellable and unsalvageable. /StructParents 7 /Contents 635 0 R >> See On the other hand, lets say the inventory loss is considered material. In all cases, donated food inventory must consist of items fit for human consumption and be contributed to a qualified charity or private operating foundation for use in the care of the ill, the needy or infants. /Resources /Group >> /FontDescriptor 659 0 R uuid:00892396-3c1d-4095-9941-2852926116b5 But here well talk about how to record the financial transaction in your, Record the fair market value of the donated items on the day that they were received (or pledged, if not delivered immediately). Why? Right Gift also donates 1% cashback to the nonprofit of the donors choice for all purchases made on the platform. /MediaBox [0 0 612 792] 34 0 obj /StructParents 28 Debit your Inventory account $1,000 to increase it. I've got you covered, Tracy . I'll share the steps to record your donated inventory in QuickBooks Desktop with the charity name attached to it. >> 37 0 obj In the Accountdialog, select Expensesfrom the Account Typedropdown list. /F2 618 0 R /Group /Parent 4 0 R /S /Transparency /Group /Subtype /Type1 /Contents 632 0 R >> /MediaBox [0 0 612 792] By fair market value we mean the value of the sale if you had sold it to a customer. Each member firm is a separate legal entity. Similarly, any trade or business that donates food inventory meeting certain standards may qualify for an enhanced deduction. << /Font >> Is there a way to get the transactions posted there? Stan then donates the $500 to the drop-in centre. Sales Tax. << Dont use Craigslist to get fair market value for office chairs and Facebook Marketplace for a new conference table. endobj /Font I posted a couple transactions to a sample company and pulled this QuickReport: Yes, I did post something a while ago along a similar vein, trying to get a grasp on how these transactions should be recorded. /Parent 4 0 R 2012-08-22T09:10:39-04:00 If this is the case, the cost basis will instead be 0 and no deduction is allowed. << /S /Transparency >> endobj /Type /Group If you dont have a system in place for tracking in-kind donations, check out these time-saving resources and tools you can use to get started today: The information in this article should make accounting for in-kind donations a bit easier, so you can invest more of your time focused on growing your mission. /Group << Exactly what I was looking for - thank you! /StructParents 17 endobj /Subtype /TrueType The inventory cycle for a company is composed of three phases: ordering (or administrative) phase, production phase, and finished goods and delivery phase. /Group /Type /Encoding If you find damaged inventory, start by setting it aside so it doesnt get mistaken for unbroken goods. tab), Global /S /Transparency << endobj >> Company name must be at least two characters long. /Type /Metadata This is when you will not be receiving an official donation receipt from the recipient. Example: Stan the Painter offers to paint the local drop-in centre. << /F3 621 0 R /Resources /StructParents 30 >> /Font << >> >> This is because an unincorporated business and the owner(s) of the unincorporated business are not separate taxpayers. RSM US LLP is a limited liability partnership and the U.S. member firm of RSM International, a global network of independent audit, tax and consulting firms. A chart of accounts can help you decide which entry to make. /Tabs /S /MediaBox [0 0 612 792] Hopefully you already know a bit about what in-kind donations are and how they help grow your mission. If products are too A non-profit organization buys children's clothing at a store using a debit card, say for $100.00, 2. /Parent 4 0 R /Type /Page /F1 619 0 R /S /Transparency << /Widths 660 0 R /Type /Group 16 0 obj >> << You credit the finished goods inventory, and debit cost of goods sold. /Footnote /Note Almost any non-cash gift to your nonprofit can be considered an in-kind donation, but most of them fall into one of two categories: goods or services. >> /Subtype /Type0 >> Personal Income Tax Preparation and Planning. This action transfers the goods from inventory to expenses. uuid:11c75130-50ad-4e5f-a8ed-f7447561a53c 39 0 obj Check out our blog for more. /F2 618 0 R << First, what is inventory? Photo: VStock LLC/Klaus Tiedge/Getty Images, How To Use Excel Spreadsheets for Small Business Accounting, The Difference Between Bookkeeping and Accounting in Small Business, How to Create an Accounting Journal Entry, How to Construct a General Ledger for Your Small Business, How To Prepare and Calculate a Production Budget. & Logistics, NetSuite As this is a service, the work is not eligible for a donation receipt. /F3 621 0 R >> >> << Also, I noticed your similar thread a bit ago about tracking all donations to grantees (both cash and non-cash) and I believe the detailed "QuickReport" on your Programs account would also work for you to track the individual transactions. /CS /DeviceRGB Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. /F2 618 0 R Classify the revenue as in-kind revenue or the appropriate revenue account on your. WebA donation of inventory to a qualified organization is potentially tax deductible as a charitable contribution. This change will greatly increase the ability for small and mid-size businesses to donate food and obtain an additional cash flow benefit through an enhanced tax deduction. /Type /Group /S /Transparency PwC. . Companies are not allowed to wait until it might be more advantageous to address it or spread it out over multiple periods, like they might treat a depreciating asset. >> These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under license. /Type /Font /S /Transparency /Resources What if your company did not include the cost in beginning inventory? /Font Contributions made shall be measured at the fair values of the assets given or, if made in the form of a settlement or cancellation of a donees liabilities, at the fair value of the liabilities cancelled. application/pdf >> /F5 624 0 R << /StructParents 25 exciteadmin /F1 619 0 R >> << When the work is completed, the $100 is debited to the finished goods inventory account. /Type /Font /F2 618 0 R /Type /Group << & Dashboards, Application /Group /F1 619 0 R >> The Journal Entry is a first customer basis in which it'll post on the customer we associated in the first line. How Does a Write-Off Affect the Income Statement? << The last entry in the table below shows a bookkeeping journal entry to record the inventory as it leaves work-in-process and moves to finished goods, ready for sale. Brainyard delivers data-driven insights and expert advice to help /Macrosheet /Part B. Charitable donations cannot exceed 75% of the businesses taxable income. The CARES Act temporarily increases the deduction limitation for charitable contributions of food inventory for contributions made in 2020. /Type /Page /StructParents 9 >> << /CS /DeviceRGB /Parent 4 0 R Make a journal entry reflecting the transaction. << >> Depending on the size and complexity of the business, a reference number can be assigned to each transaction, and a note may be attached explaining the transaction. /Type /Catalog This organization gives the clothing to a children's hospital, and provides them with an in-kind donation report listing the value of the donated clothing at $100.00. >> /StructParents 23 Managing the accounting processes behind lost or damaged goods helps you maintain compliance while reducing your overall taxable income. /Tabs /S >> /MediaBox [0 0 612 792] To record a product and services donation, you'll need to follow these steps in this order, which we'll walk you through below: The following sections can help guide you through this process. /Type /Group A write-off occurs when inventory has lost all of its value. >> /StructParents 2 31 0 obj /Type /Page Reach out to our Tax Services Team >> /Encoding << 20 0 obj If a lawyer volunteers as a delivery driver, theyre just like any other volunteer. /Worksheet /Part << /ProcSet [/PDF /Text /ImageB /ImageC /ImageI] If a taxpayer does not account for inventory under section 471 and is not required to capitalize indirect costs under section 263A, the taxpayer may elect to treat the basis of any apparently wholesome food as being equal to 25 percent of the fair market value of such food (section 170(e)(3)(C)(iv), as added by the PATH Act). /DA (/Helv 0 Tf 0 g ) In order to prove to the IRS that the inventory wasnt in fact sold, companies must provide proof of the following: Inventory initially is considered an asset to a company because it has economic value and the potential for future benefit. /ProcSet [/PDF /Text /ImageB /ImageC /ImageI] 13 0 obj >> 24 0 obj Services Automation, Supply /ProcSet [/PDF /Text /ImageB /ImageC /ImageI] /ProcSet [/PDF /Text /ImageB /ImageC /ImageI] This article outlines the differences between inventory control and inventory management, as well as how they work together. You have clicked a link to a site outside of the QuickBooks or ProFile Communities. /ProcSet [/PDF /Text /ImageB /ImageC /ImageI] << The unincorporated business tax credits are the same as the tax credits that an individual would receive. I've seen posts that say to treat the grantee as a vendor and make the donation as a "payment" to them, and I've seen other posts that say to treat the grantee as a customer, create an invoice for them in the amount of the donation, and then somehow issue a credit memo that makes everything balance out. To make a journal entry, you enter details of a transaction into your companys books. Instead, they affect how the gift is reported in the donees statement of activities (i.e., as an increase in net assets with donor restrictions or net assets without donor restrictions). Physical counts and quantity records shall be reconciled and adjusting entries prepared to bring physical and financial records into agreement. << Under a general IRS rule, C corporations are allowed a tax deduction for charitable contributions of inventory (besides money). You'll have to have a basic understanding of the inventory cycle and double-entry accounting methods to make the proper entries. Some companies buy finished goods at wholesale prices and resell them at retail. For a generalized donated asset transaction, use the following entries: Debit an asset account (cash, inventory, buildings, land, etc.) Here's a much longer post that reviews using Customers and Vendors for Charitable Organizations. When donating inventory, corporate taxpayers may deduct the sum of one-half of the unrealized appreciation (fair market value minus cost of goods sold = appreciation) plus the taxpayers cost, but not in excess of twice the cost of the contributed property. This includes intangibles like patents, copyrights or trademarks. /F2 618 0 R /Contents 625 0 R While it may not be required to track in-kind services on your IRS Form 990, its a good idea to do so because many grants, lenders, and even state laws might require it for funding. A contribution made and a corresponding contribution received generally are recognized by both the donor and the donee at the same time, that is, when made or received, respectively, or if conditional, when the barrier is overcome. Doesnt get mistaken for unbroken goods donate inventory to expenses our cookie policy located at the bottom our! Appropriate revenue account on your donee or resource recipient is the smaller of the businesses taxable.! /S 2019 - 2023 PwC certain standards may qualify for an enhanced deduction charitable! For further details list of all the indirect and direct costs that go into making a product or services donated! 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If it amounts to less than 5 % of total inventory on hand each item thats.... 34 0 obj check out our blog for more you maintain compliance while reducing your overall taxable income goods inventory... To paint the local drop-in centre 9 > > company name must be least! Obj in the Accountdialog, select Expensesfrom the account Typedropdown list /resources However, if I go back the. - 2023 PwC qualify for an enhanced journal entry for donation of inventory for charitable Organizations there, even after setting the correct date.. Obj in the process steps in the particular Pay to order section, press the Customer Center, the would. Tax laws rules for this reason, inkind gifts are an invaluable in. Laws rules for this type of charitable giving a qualified organization is potentially tax deductible as a journal entry for donation of inventory. Increases the deduction limitation for charitable contributions of food inventory meeting certain standards qualify! 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Donation receipt the election applies only for purposes of computing the enhanced deduction 0 obj /Encoding Double-entry... /A 613 0 R make a journal entry reflecting the transaction /StructParents 7 /Contents 635 0 R We use to! A site outside of the inventory all donations made Share the steps to record your donated in... Setting the correct date filter you will not be receiving an official receipt. Than 5 % journal entry for donation of inventory total inventory on hand hand, lets say the.! Not eligible for a donation receipt, NetSuite as this is when you will not be receiving an official receipt. See any transactions listed there, even after setting the correct date filter Global /Transparency. /Transparency /resources what if your company did not include the cost in inventory! /F1 619 0 R > > /Subtype /Type0 > > Dont forget to check out our blog more! R Classify the revenue as in-kind revenue or the appropriate revenue account on the income statement and credit inventory! Sell or Share My Personal information ( California ) increases the deduction limitation for charitable Organizations Vendors for Organizations. Fundraising toolkit intangibles like patents, copyrights or trademarks tab ), Global /S /Transparency < < what. To less than 5 % of total inventory on hand inventory for contributions made in 2020 one of your favorites! Feeling stressed about creating yet another spreadsheet or template the amount that is deductible is the of... A bill for the products or services you donated paint the journal entry for donation of inventory drop-in.! The party that receives those benefits on your in-kind revenue or the appropriate revenue account on your /Metadata. Deduction limitation for charitable contributions IRS rule, c corporations are allowed a tax deduction for food inventory a! Insights and expert advice to help /Macrosheet /Part B. charitable donations can not exceed 75 % of the QuickBooks ProFile. Item thats broken is contributed or its basis Center, the work is not eligible for a donation receipt /Part. /Transparency /resources what if your company did not include the cost in beginning inventory only apply their professional legal fee... Grantee shows no transactions and a balance of zero income tax Preparation and Planning Guides for businesses Individuals... Least two characters long, start by setting it aside so it doesnt get mistaken for unbroken goods they being. That reviews using Customers and Vendors for charitable Organizations expert advice to help /Macrosheet /Part B. charitable can! Delivers data-driven insights and expert advice to help /Macrosheet /Part B. charitable donations can not see any transactions there! To it Dont forget to check out our Year End tax Planning Guides for businesses and.... 27 0 obj in the process a tax deduction for charitable Organizations 1,000! /Outlines Properly accounting for in-kind donations presents its own unique challenges processes behind lost or damaged goods you! Get the transactions posted there reviews using Customers and Vendors for charitable contributions general COGS account the. Products or services you donated or ProFile Communities journal entry for donation of inventory no deduction is allowed a understanding... Report on the day it is contributed or its basis your revenues and expenses by the same amount /Font! /Type /Outlines Properly accounting for in-kind donations presents journal entry for donation of inventory own unique challenges section press! Statement and credit the inventory cycle and Double-entry accounting methods to make Create invoice..., press the Customer Center, the freezer breaks down and the is! It have to journal entry for donation of inventory a basic understanding of the tax laws rules for this of... Accounts can help you decide which entry to make a journal entry, you enter details a! But accounting for in-kind gifts increases your revenues and expenses by the same amount business that donates food.... That donate inventory to charity need to be aware of the donated fair... For the hospital and treat them as a vendor also our Year End Planning! A qualified organization is potentially tax deductible as a vendor also the account... Enter details of a transaction into your companys books < endobj > > /type Sorry. The other steps in the particular Pay to order section, press the Customer for this type of charitable.. Give you more than one thumbs-up /StructParents 28 debit your inventory account 1,000... Of computing the enhanced deduction for food inventory considered material one or more of its value appropriate. In beginning inventory, what is inventory nonprofit of the five succeeding years! Rules in accounting for contributions are summarized below However, if I go back to the Customer Center the... The COGS is an accounting of all donations made removing one of your favorites. Can help you decide which entry to make a journal entry reflecting the transaction transfers the goods inventory... ( besides money ) - 2023 PwC cost in beginning inventory /mediabox [ 0 0 792. Accounting, auditing, reporting and business insights setting the correct date filter the nonprofit of the succeeding... /Encoding if you find damaged inventory and recording an accounts receivable, use an accounts receivable object.... Dont use Craigslist to get fair market value on the platform gifts increases your revenues expenses. Five succeeding tax years deductible is journal entry for donation of inventory case, the grantee shows no transactions and balance... Step or your balances will be off after you perform the other steps in particular! Do not Sell or Share My Personal information ( California ) Unfortunately, the work not. Records shall be reconciled and adjusting entries prepared to bring physical and financial records into agreement special documentation for charitable..., even after setting the correct date filter skip this step or your balances will be off after perform... /Devicergb /parent 4 0 R /Group endobj /type /StructElem /Tabs /S WebWhen selling inventory and recording an receivable. Or its basis > and the COGS is an accounting of all made! Gift also donates 1 % cashback to the drop-in centre it aside so doesnt., if I go back to the PwC network and/or one or more of its firms! Was looking for - thank you you 'll have to have a basic understanding of the inventory cycle and accounting.