Finance Basics: Holding Inventory (B)
What is Product Inventory?
Posted: Apr 2009
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Products not sold at the end of a period and held in the company as stock are called inventory.
The need to carry inventory might be due to:
• uncertainty about the number of customers
• uncertainty about the availability of supplies.
INVENTORY ON THE BALANCE SHEET
Inventory is an asset (something owned) which will appear on the balance sheet.
The inventory on the balance sheet appears at its value - most commonly, the cost of the products.
ACCOUNTING FOR PRODUCTS
Fast Food chain warns JS that they will be not work during the weekend, due to holidays..
However, they still can provide a large quantity of sandwiches, so that JS can have them on stock for a few days.
As usual, they expects to be paid for the full amount tomorrow.
JS does some advance forecasts and, taking into consideration some ambitious expectations for the weekend's sales, he places an order for 15 boxes of sandwiches.
Products unsold at the end of a period appear as inventory on the asset side of the balance sheet.
• Items on the balance sheet always appear as a value, not a number of units.
• The profit & loss statement only records the goods when they are sold – under cost of goods sold
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