Asset Inventory Definition

Inventories are short-term assets.

A company's inventory levels are important indicators of economic robustness. Senior management often review corporate inventory amounts to forecast future business trends and performance ratios, such as profit margin and gross margin.

Definition

A company's inventories consist of raw materials, semi-finished items and manufactured products that the firm sells or uses in operating activities. Inventories are short-term or current assets because the company generally intends to use them within 12 months.

Accounting

To record the purchase of inventories on credit, an accountant debits the material purchases account and credits the vendor payables account. If the purchase is a cash transaction, the accountant credits the cash account. In accounting parlance, crediting an asset account, such as cash, means reducing the account balance.

Financial Reporting

Inventory transactions affect two corporate financial statements. An accountant reports inventory purchases, vendor discounts and allowances and the cost of materials in the statement of profit and loss, otherwise known as the statement of income or income statement. The accountant records inventory assets in the balance sheet, also called statement of financial condition.

References

• Investopedia: Inventory
• Investopedia: Inventory Valuation For Investors: FIFO And LIFO