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Inventory: Definition and Meaning
Definition
Inventory consists of goods held for sale or materials and supplies expected to be used in producing goods for sale.
Why It Matters
Inventory affects cash flow, purchasing, gross profit, cost of goods sold, storage needs, and financial reporting. Overstated, obsolete, damaged, or missing inventory can distort financial results and create operational problems.
Businesses should use procedures appropriate to their operations for receiving, counting, tracking, valuing, and reconciling inventory.
Example
A retailer records products held for sale as inventory until they are sold. When sold, their cost is generally transferred to cost of goods sold.
Related Terms
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