Inventory
Assets are a list of everything a company owns, and a large asset account for many companies is their inventory. Inventory represents something that the company either made, using labor and materials, or something that they purchased from an outside supplier. These sections will prepare you to explain how inventory is defined, how it is valued, and its effect on the balance sheet.
1. Inventory
Figure 10.1 Inventory.
Did you ever decide to start a healthy eating plan and meticulously plan your shopping list, including foods for meals, drinks, and snacks? Maybe you stocked your cabinets and fridge with the best healthy foods you could find, including lots of luscious-looking fruit and vegetables, to make sure that you could make tasty and healthy smoothies when you got hungry. Then, at the end of the week, if everything didn't go as you had planned, you may have discovered that a lot of your produce was still uneaten but not very fresh anymore. Stocking up on goods, so that you will have them when you need them, is only a good idea if the goods are used before they become worthless.
Just like with someone whose preparation for healthy eating can backfire in wasted produce, businesses have to balance a fine line between being prepared for any volume of inventory demand that customers request and being careful not to overstock those goods so the company will not be left holding excess inventory they cannot sell. Not having the goods that a customer wants available is bad, of course, but extra inventory is wasteful. That is one reason why inventory accounting is important.
Source: https://openstax.org/books/principles-financial-accounting/pages/10-why-it-matters
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 License.