Inventory

What is Inventory?

Inventory stands for the raw materials used in the production and the produced goods that are ready for sale. A company's inventory is one of its most important assets because it is the major source of the inflow of revenue if an inventory is sold. Inventory is usually found under the current asset on the balance sheet.

Examples of Inventory

Here are the three categories of inventory:

1. Raw Material: The materials in their original form. These materials haven’t gone through the production process yet. Some examples are metals, fabric, cloth, etc…

2. Work-in-Progress: The materials that are half-finished and are still in the production process. For example, pieces of fabric had been cut into the shape of a jacket, yet the buttons and other details are not added to the jacket.

3. Finished Goods: The materials that are finished and are waiting to be sold.

Why Is It Important?

For business managers, the link between inventory and revenue indicates how well the company is managing its inventory. Good inventory management can help the company minimize the COGS, because goods are only produced and sold when there is a customer. Many companies applied advanced technologies to manage their inventory (supply chain management is part of it), which also suggests the importance of inventory to a business.