Updated on March 7, 2023
Inventory refers to the raw materials or items to be used in production or manufacturing. It also includes the goods produced that are available for sale in the company’s warehouse or production house. Inventory is an important company asset and turnover of inventory makes it one of the primary sources of revenue for the company. Inventory can be in the form of raw materials, work-in-progress or stock in the various production stages and finished goods. On the Balance Sheet, Inventory is represented as the current asset of the company. It is categorised as a short-term asset, to be liquidated within one year. Inventory management requires the management to ensure enough stock in hand and to prevent any shortage of raw materials or goods for production.
Why is inventory important?
It is necessary for retailers and manufacturers as they can continue to sell or continue production simultaneously. However, too much inventory can be a liability, while optimum inventory levels and turnaround time represents an organization’s financial health and capability.