What is Inventory?

Inventory or Stock refers to the goods and materials that a business holds for the ultimate purpose of resale. It is a Current Asset on the Balance Sheet. Most manufacturing organizations usually divide their “goods for sale” inventory into:

  • Raw Materials – materials and components scheduled for use in making a product
  • Work in Process or WIP – materials and components that have begun their transformation to finished goods
  • Finished Goods – goods ready for sale to customers
  • Goods for Resale – returned goods that are salable
  • Stocks in Transit
  • Consignment Stocks

In most businesses, the “bodies are buried” in the inventory and the A/R. For example, Pre-billed goods should be taken out of inventory and put into A/R or they can be double counted. In addition, inventory not readily saleable in the next 12 months should be written down in value.

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