Inventory - 1
INVENTORY
Definition: inventory is a stock of goods or other items owned by a firm
and held for sale or for processing before being sold, as part of a firm’s
ordinary operations.
Merchandise inventory - inventory of retailers or wholesalers. -
Finished goods - manufacturing firms. (Also hold work in process and raw
materials or supplies).
For most firms, inventories are the firm’s major revenue producer.
Exceptions would be service-oriented companies, which carry little or no
inventories.
The percentage of inventories to total assets range from as low as
20% for manufacturers to over 65% for retail firms.
Manufacturing
Drugs and Medicine 23.6
Household Electric Appliances 29.8
Sporting and Athletic Goods 39.4
Wholesale
Drugs 40.2
Electrical Appliances 43.5
Sporting and Recreational Goods 49.4
Retail
Drugs .-47.1
Household Appliances 50.7
Sporting Goods and Bicycles 63.6
Source: Robert Morris Associates.
Annual Statement Studies,
Philadelphia, PA. 1992.
Given the relative magnitude of inventory, one important factor in
measuring income is the value of ending inventory. The higher the value of
ending inventory (reported in the balance sheet), the lower the value of
COGS and, therefore, the higher the net income (income statement). The
significance of inventory accounting is underlined by the presence of
inflation and by the implications of tax payments and cash flows.