MA.4:5.2 - Continue through the next period
The next period opens with forty units: full-cost inventory of 200 and internal material-valued inventory of 80. Opening receivables are 200 and opening payables are zero. The same physical opening stock therefore supplies different monetary amounts to the two views.
Produce sixty new units using materials of 120 and production-resource supply of 300. Both are invoiced by suppliers on credit. The supplied full-cost policy admits all 420 to the new inventory, or 7 per new unit, and uses FIFO to identify the cost sold. The internal policy admits only materials, or 2 per unit, and expenses the 300 resource supply. There are no other events, taxes, noncash charges or financing flows in this constructed period.
Sell eighty units for 800 on credit, collect the old receivable of 200 and 500 of the new sales, and pay suppliers 300. Build the accounts from those events:
| Quantity | Full-cost view | Internal view |
|---|---|---|
| Opening inventory | 200 | 80 |
| Inventory additions | 420 | 120 |
| Cost of the eighty units sold | 200 for forty old units + 280 for forty new units = 480 | 80 + 120 − 40 = 160 |
| Closing inventory: twenty new units | 140 | 40 |
| Resource supply expensed outside inventory | 0 | 300 |
| Period result | 800 − 480 = 320 | 800 − 160 − 300 = 340 |
Receivables close at 200 + 800 − 700 = 300. Payables close at 0 + 420 − 300 = 120. Direct cash movement is 700 − 300 = 400. Each view reaches that amount using its own inventory movement:
- Full cost: 320 − (140 − 200) − (300 − 200) + (120 − 0) = 400.
- Internal: 340 − (40 − 80) − (300 − 200) + (120 − 0) = 400.
The full-cost result is now twenty lower than the internal result. Full-cost inventory retains 100 more production-resource cost at closing, compared with 120 more at opening. The change, 100 − 120 = −20, explains the reversal. Using only closing inventory would miss the release of the previous period’s cost.
If customers instead settle another 100 before period end, closing receivables fall to 200 and cash movement rises to 500. Both period results stay unchanged under these recognition premises. If that 100 is instead an advance for future work, its event and liability treatment must be obtained; it cannot be subtracted from these existing receivables merely to make the bridge balance.
MA.5 can project the same movements through future periods. Keep a revised collection date in the cash forecast, while retaining the recognition and valuation assumptions that still hold.