“Inventory is an accounting term that refers to goods that are in various stages of being made ready for sale”

Inventory includes goods prepared for sale as well as any physical resources used in the production of the finished products. Inventory must be reported as a current asset or short-term asset as it is generally liquidated (turned into cash) within a year.

The Inventory includes:

Finish Goods

In inventory the finish goods are the goods that are available for the sale. Materials or products which have received the final increments of value through manufacturing or processing operations, and which are being held in inventory for delivery, sale, or use.

Work in Process

In the inventory the work in process are the goods that are in the meaning in the process of being made. Work-in-progress (WIP) is a production and supply-chain management term describing partially finished goods awaiting completion. WIP refers to the raw materials, labor, and overhead costs incurred for products that are at various stages of the production process

Raw Material

In the inventory the raw material are the goods that are used to produce or manufacture further goods. Crude or processed material that can be converted by manufacture, processing, or combination into a new and useful product.

A same level of inventory provide flexible link between production and sale of the product. This level helps in fulfilling the sales order in time. When we mention the inventory account in the balance sheet, this account includes the raw material that is present in the ware house of the company, work in process present in the assembly line of the company, finish goods are present in the outlets for the sale purpose.

Advantage of maintaining safe level of inventories

Companies maintain a safe level of inventories for following advantages. The following advantages are as follow:

  1. A safe level of inventory provide flexibility in purchasing.
  2. Evident in the production scheduling due to safe level of inventories the company can schedule its production order in time.
  3. The companies can service the customer demands efficiently by having a safe level of inventories.

financial accounting

October 13, 2019