Inventory
Goods held for sale or materials used to produce goods.
Inventory encompasses all goods held for resale plus raw materials and work-in-progress used in manufacturing. Valuation methods (FIFO, LIFO, weighted average) determine how costs are assigned to sold versus remaining goods. Effective management balances having enough stock to meet demand against the cost of holding excess inventory.
Example
A pet supply store has $50,000 in inventory: $20,000 in dog food, $15,000 in cat products, $10,000 in aquarium supplies, and $5,000 in accessories.
Why It Matters for Your Business
Inventory is often the largest current asset for product businesses, and poor management leads to cash flow problems, spoilage, or lost sales from stockouts.
Practical Tips
- •Implement a periodic inventory count at least quarterly to verify records.
- •Use inventory turnover ratios to identify slow-moving products that tie up capital.
- •Consider just-in-time ordering for high-volume items to minimize carrying costs.
Related Terms
More Accounting Terms
Accounts Payable
Money owed by a business to its suppliers or creditors for goods or services received but not yet paid for.
Accounts Receivable
Money owed to a business by its customers for goods or services delivered but not yet paid for.
Accrual Accounting
An accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged.
Asset
Any resource owned by a business that has economic value and can provide future benefits.
Balance Sheet
A financial statement showing assets, liabilities, and equity at a specific point in time.
Related Financial Guides & Resources
Automate Your Finances with AI
FiscalInsights uses AI to automate bookkeeping, track expenses, and forecast cash flow — so you can focus on your business.
Start Free Trial