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At the end of the reporting period during the adjusting entry process, accountants and managers must also determine whether inventory is correctly...
At the end of the reporting period during the adjusting entry process, accountants and managers must also determine whether inventory is correctly valued and make an adjusting entry if it is not. Declines in inventory can occur due to inventory shrinkage (i.e., spoilage and theft) and obsolescence. GAAP requires Starbucks to value the inventory at the lower-of-cost-or-market (LCM), which it does. Note 1 reports that it has established LCM reserves of $33.8m and $31.2m, for 2015, and 2014, respectively. These amounts are small as evidenced by their percentage of inventory from the balance sheet grossed up by the amount of the reserve:
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