Introduction to inventory

Introduction to inventory

The word inventory doesn’t have the same meaning in the USA and in the UK:
• In American English and in a business accounting context, the word inventory is commonly used to describe the goods and materials that a business holds for the ultimate purpose of resale (or repair). In American English, the word stock is commonly used to describe the capital invested in a business, while in British English, the sentence stock shared is used in the same context.
• In the rest of the English-speaking world, stock is more commonly used, although the word inventory is recognised as a synonym. In British English, the word inventory is more commonly thought of as a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished.
While accountants often discuss inventory in terms of goods for sale, organizations – manufacturers, service-providers and not-for-profits – also have inventories (fixtures, furniture, supplies, etc.) that they do not intend to sell. Manufacturers’, distributors’, and wholesalers’ inventory tends to cluster in warehouses. Retailers’ inventory may exist in a warehouse or in a shop or store accessible to customers. Inventories not intended for sale to customers or to clients may be held in any premises an organization uses. Stock ties up cash and, if uncontrolled, it will be impossible to know the actual level of stocks and therefore impossible to control them.
While the reasons for holding stock were covered earlier, most manufacturing organizations usually divide their “goods for sale” inventory into:
• Raw materials – materials and components scheduled for use in making a product.
• Work in process, WIP – materials and components that have begun their transformation to finished goods.
• Finished goods – goods ready for sale to customers.
• Goods for resale – returned goods that are salable.
• Stocks in Transit.
• Consignment Stocks.