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An inventory consists of a list of goods and materials held available in stock. An inventory can also be a self examination, a moral inventory. Each country has its own rules about accounting for inventory; this article concentrates on economic theory, United States financial accounting rules, and Eliyahu M. Goldratt's throughput accounting. National boundaries do not limit economics, and throughput accounting functions independently of national regulations because it affects public financial reports only indirectly.
Organizations in the U.S. define inventory to suit their needs within Generally Accepted Accounting Practices (GAAP), the rules defined by the Financial Accounting Standards Board (FASB) (and others) and enforced by the Securities and Exchange Commission (SEC) and other federal and state agencies. Inventory management affects organizations' internal operations through their cost accounting methods. Nearly all goods feature printed bar codes -- known as Stock Keeping Units or SKUs -- for their role in managing inventory.
While financial accounting uses standards that allow the public to compare firms, cost accounting functions internally to an organization and with much greater flexibility. A discussion of inventory from standard and theory of constraints-based ( throughput) cost accounting perspective follows some examples and a discussion of inventory from a financial accounting perspective.
1 Inventory Examples
Non-manufacturing (service) organizations may have inventories of goods for sale and goods (fixtures, furniture, supplies, ...) that they do not intend to sell. Manufacturing organizations usually divide their "goods for sale" inventory into:
- materials and components scheduled for use in making a product (Materials and Components or Raw Materials)
- materials and components that have begun their transformation to finished goods (Work in Process, or WIP)
- finished goods. ready for sale to customers.
For example:
- Manufacturing: A canned food manufacturer's materials inventory includes the foods to be canned, empty cans and their lids (or coils of steel or aluminum for constructing those components), labels, and anything else (solder, glue, ...) that will form part of a finished can. The firm's work in process includes those materials from the time of release to the work floor until they become complete and ready for sale to wholesale or retail customers. Its finished good inventory consists of all the cans of food in its warehouse that it has manufactured and wishes to sell to food distributors (wholesalers), to grocery stores (retailers), and even perhaps to consumers through arrangements like factory stores and outlet centers.
- Logistics: Some distributors act as manufacturers' agents, holding their finished goods inventory without ever owning it. Distributors who act as agents function in the logisticsIn military and business, logistics experts manage how and when to move resources to the places they are needed. In military science, maintaining ones supply lines while disrupting those of the enemy is a crucial, and some would say the most crucial eleme industry rather than the wholesaleIn commerce, a wholesaler buys goods in large quantities from their manufacturers or importers, and then sells smaller quantities to retailers, who in turn sell to the general public. See also : distribution, retail, supply chain List of Marketing Topics industry; with inventory referred to as materielMateriel (from the French for material) is the equipment and supplies in Military and commercial supply chain management. In a military context, materiel relates to the specific needs of an army to complete a specific mission. The term is also often used to differentiate it from goods for sale.
- Wholesaling: Distributors who buy goods from manufacturers and other suppliers (farmers, fishermen, etc.) for resale work in the wholesaleIn commerce, a wholesaler buys goods in large quantities from their manufacturers or importers, and then sells smaller quantities to retailers, who in turn sell to the general public. See also : distribution, retail, supply chain List of Marketing Topics industry. A wholesaler's inventory consists of all the products in its warehouse that it has purchased from manufacturers or other suppliers. A produce wholesaler (or distributor) may buy from distributors in other parts of the world or from local farmers. Food distributors wish to sell their inventory to grocery stores, other distributors, or possibly to consumers.
- Retailing: A retailer's inventory of goods for sale consists of all the products on its shelves that it has purchased from distributorsDistribution is one of the four aspects of marketing. The other three parts of the marketing mix are product management, pricing, and promotion. Distribution deals with how to get the product or service to the customer. It must answer questions such as: W. The store attempts to sell its inventory of soup, bolts, sweaters, or other goods to consumers.
