Inventory is stock, goods, or merchandise that you either buy to start a business so that you sell at a price than what it costed you to buy or start a business. You simply invest on a business to earn a profit from the precised stock.
It is classified as current assets , as the business intends to sell them and usually does within a year from the date that it is listed on the balance sheet.
Inventory is recorded in the books of account in the business as opening inventory and at the end of the preferred time depending on when you intend to account for the business performance is then closed to become the closing inventory. This is run for a period of one year.
Types of inventory
The various types of inventory are classified depending on the basics made of products and time.
Raw materials inventory – Are raw materials that a business change and transforms to produce its goods and/or services.
Work-in-process inventory – These are any unfinished goods that a business has made. It is products that are in the middle of production stage and it is partly complete.
Finished goods inventory – Finished good inventory includes any finished goods that are ready to sell and start making a profit
Pros of inventory
Inventory helps you to know the size of the business. Business are easily classified with the inventory levels the bigger the inventory the larger the business and the level of returns in terms of profit.
Inventory helps in planning in terms of financing and in decision making. You can plan for things to do depending with the size of inventory.
Inventory helps when the prices of the goods are expected to increase or are high then a high level of stocks eliminate the risk of fall of supply in the future; hoarding.
Keeping inventory is helpful to ensure total customer satisfaction. There are companies that take an inventory of their supplies regularly to prevent shortage of their in demand items. And some take an inventory to make sure that the quantity of items ordered aligns the actual number of items in the inventory.
Con’s of inventory
Inventory is taking the evil because it ties up working capital and the money held can be used in other ventures.
Inventory is classified by its presence or absence; it could be too much or none and also it becomes hard to keep in the business and hard to manage.
Inventory obsolescence is having too much inventory on hand or the items are no longer wanted by the customers leading to congested shelves and products expiring before they are despatched to the final consumer.
It is costly to have lump stock because of its maintenance and the space for storage, the money spent on this can be used in other ventures of business than hoarding them increasing on the expenses of the business
Technology has simplified the way inventory was being calculated and one can know the flow of product and services from one port. An example is the wholesale shops a d supermarkets where management can see the flow and tell the trend of inventory. It has also made it easy to understand consumer more basing on the trend of products as they are determined by the taste and preference of the customers. Inventory is what makes a manager to choose between expanding the current business format or diverse the business entity.
Contact us here