Measuring and Reporting Inventories

Read this chapter. For many organizations, inventory represents a large portion of their assets, so it is important to be familiar with measurement and reporting techniques. Inventory is a major cost for many businesses, and a big source of potential opportunity for firms looking to improve their financial results.

Inventories and cost of goods sold

Inventory is often the largest and most important asset owned by a merchandising business. The inventory of some companies, like car dealerships or jewelry stores, may cost several times more than any other asset the company owns. As an asset, the inventory figure has a direct impact on reporting the solvency of the company in the balance sheet. As a factor in determining cost of goods sold, the inventory figure has a direct impact on the profitability of the company's operations as reported in the income statement. Thus, the importance of the inventory figure should not be underestimated.