Inventory
Inventory Definition
Asset items held for sale in the ordinary course of business or goods which will be utilized or consumed in the production of goods for sale The inventory of a manufacturing company typically includes subcategories of raw materials, work–in–process, and finished goods. It also might include manufacturing of factory supplies.
Inventory Valuation
Inventory line reported on the balance sheet should include all costs necessary to acquire the items and to convert them to a salable condition. Such charges would include freight, other direct costs of acquisition, and labor and other production costs incurred in processing the goods up to the time of sale.
Because it is typically the largest item in the current assets category, it must be accurately counted and valued at the end of each accounting period to determine a company's profit or loss.
Many companies whose inventory items have a large unit cost keep a day to day record of changes in inventory (called perpetual inventory method) to ensure accurate and on–going control. Companies with inventory items of small unit cost typically update their inventory records at the end of an accounting period or when financial statements are prepared (called periodic inventory method).
The value of an inventory depends on the valuation method used, such as average cost, first–in, first–out (FIFO) method or last–in, first–out (LIFO) method. Generally accepted accounting pronciples (GAAP) require that inventory should be valued on the basis of either its cost price or its current market price whichever is lower of the two to prevent overstating of assets and earnings due to sharp increase in the inventory's value in inflationary periods. The optimum level of a company's inventory is determined by inventory analysis.
Inventory is also referred to as stock in trade, or just stock.
12 Month Cash Flow Template
The best way to manage your cash levels is with a cash flow analysis tool. This cash flow template is this kind of a tool. Lay out your cash inflows and outflows in an organized fashion and monitor your cash balances from day to day or week to week. This way you will know in advance when you cash balance will be high enough to transfer some of it to marketable securities.
Inventory purchases normally represent the largest outlays of cash in an average company. Plan ahead to keep up with your vendor payments, because once you start lagging behind, you may lose some of your preferential terms with them and nothing is harder to manage than a business whose vendors require an upfront payment for inventory.
Balance Sheet Templates
1, 3 and 5 year balance sheet templates for three different legal entities: LLC, corporation and a sole proprietor.
Balance Sheet Analysis
Learn how to analyze a balance sheet in terms of company's liquidity and solvency using financial ratios such as the current ratio, quick (or acid) ratio, debt to asset ratio and debt to equity ratio.
Return from inventory to Sample Balance Sheet
Return from inventory to Small Business Accounting
