Is Inventory an Asset?
Written by Eddy Hood
Is inventory an asset? This is a question that a small business owner, particularly a new one, might want to ask their accountant. If you run a manufacturing or trading business, you have inventory that you plan to sell either wholesale or retail. That inventory has value and is expected to sell within a certain period of time after being recorded on the balance sheet. As a result, your inventory is recorded and becomes what is called a current asset. So is inventory an asset? Yes, as long as it is sold in a timely manner. In retail or wholesale businesses, inventory is one of the primary sources of revenue for the business.
What is an Inventory Asset?
What is an inventory asset? Inventory assets are goods or items of value that a company plans to sell for profit. These items include any raw production materials, merchandise, and products that are either finished or unfinished. They also include any kind of securities that a stock broker or dealer buys and then sells. They are considered a part of your business assets. Basically, inventory assets are your saleable inventory. Excess inventory, however, can also become a liability, as it may cost resources to store, and it may have a limited shelf life, meaning it can expire or become out of date. Examples include food which can eventually spoil, computers which can become obsolete, securities that lose too much of their value, or clothing that can go out of style or become no longer fashionable. Your business may be forced to either dispose of these assets or sell them at a loss. Therefore, to keep inventory from becoming a liability or loss, a business must not store too much at any time. However, at the same time, your company also does not want to have too little inventory, as shortages can cost sales. This is because it can drive customers to other businesses that can meet their demands and can also decrease your business's reputation by creating a dissatisfying experience for your customers.
What are Asset Accounts?
How do you keep track of inventory? Asset accounts are accounts that are established to help you keep tabs on the value of the inventory that you currently have on hand. Inventory asset accounts can also keep track of the fluctuating value of securities. Generally speaking, an asset account should help you keep track of how much inventory you have, how much of a given item you have, the value of each item, how long your business has had each item in its possession, and how much shelf life each item has left.
Outsourced Accounting Services
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