What is the inventory and its role in business?
Inventory includes raw material, partially and ready to sell goods. In manufacturing, all three categories are available which are just mentioned to find out opening and ending inventory, whereas in a retail or supplying enterprises, ready to sell goods are only applicable to calculate the opening and ending inventories.
Where does the inventory classify in the income and balance sheet statements?
Inventory in the income statement is classified under cost of goods sold as opening and ending inventory. Whereas, in the balance sheet it is classified under current. Inventory considers liquid cash; it is converts into cash anytime.
How to record inventory in the business books for accounting purposes?
Opening and ending inventories are recorded in business books to calculate gross profit. It is explained below in detail how both opening and ending inventories are accounted.
Opening Inventory
Opening Inventory is debited in the income statement under cost of goods sold whereas it is credited in the balance sheet under current assets.
Ending or Closing Inventory
Ending inventory under cost of goods sold is credited to calculate gross profit and inventory is debited on the balance sheet.
Opening inventory vs closing inventory vs inventory
Opening inventory represents previous day stock, ending inventory is the end of the day stock, whereas inventory balances opening and ending inventories. Like a bridge to bring from one end to another end.
Inventory vs Stock
A product which is ready to sell is called stock, whereas the inventory includes finished product, partially finished product, and the raw material to use in future to produce a product.
How to account stolen and damaged goods?
Stolen item is reported a theft under an expense, whereas damaged or obsolete item is reduced from the inventory and debited to loss on inventory under cost of goods sold.
Does cryptocurrency record as inventory?
The crypto-currency is not an obvious object and asset. It is recorded as an investment rather than the inventory under the current assets.
Inventory Reconciliation or Stocktaking:
Inventory must be checked time to time randomly to make sure stock is available to deliver to an end user.
Inventory Management
Inventory management is a key component of any business, and every item must be tagged with serial numbers, product name and whatever is necessary to recognize.
