The value of materials and goods held by an organization (1) to support production (raw materials, subassemblies, work in process), (2) for support activities (repair, maintenance, consumables), or (3) for sale or customer service (merchandise, finished goods, spare parts).
Inventory is often the largest item in the current assets category, and must be accurately counted and valued at the end of each accounting period to determine a company's profit or loss. Organizations whose inventory items have a large unit cost generally keep a day to day record of changes in inventory (called perpetual inventory method) to ensure accurate and on-going control. Organizations with inventory items of small unit cost generally update their inventory records at the end of an accounting period or when financial statements are prepared (called periodic inventory method). The value of an inventory depends on the valuation method used, such as first-in, first-out (FIFO) method or last-in, first-out (LIFO) method. GAAP require that inventory should be valued on the basis of either its cost price or its current market price whichever is lower of the two to prevent overstating of assets and earning due to sharp increase in the inventory's value in inflationary periods. The optimum level of inventory for an organization is determined by inventory analysis. Called also stock in trade, or just stock.
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