Accounting Theory: Review of Theory in Purchasing and Inventory Management

Abstract

Separate classification and measurement of inventories and purchasing effort of an organisation are necessary because of their significance as a basic resource of many firms and because the basis of valuation of inventories has a direct effect on the reported income and the cash flow presentations. Similarly, an evaluation of current and suggested measurement procedures should take into consideration the basic nature of inventories in relationship to the firm’s operations, and the objectives and basic concepts as relating to accounting. In step with the changes in firms’ competitive environments, the purchasing function is receiving increasing attention from managers and researchers alike. Through the past decades, the purchasing and supply management (PSM) literature has shifted towards a more strategic focus. This paper discusses the concepts and theories underpinning the purchasing and inventory management in relation to the theory of creation/invincible hand and its importance in accounting theory. Contents analysis was adopted for this study by reviewing the available literature in this field. It was discovered that theory is the backbone that shape practice in purchasing/supply chain and inventory management.