How to Prepare the Inventory Section of a Balance Sheet
If you run a manufacturing or retail business, one of the largest and most significant items in your balance sheet will likely be the inventory. This covers the tangible products that you hold that are of value. Inventory is a key asset on the balance sheet--listing this information helps you determine the value of your business. It also tells you exactly how much product you are storing after each period so that you can make better inventory management decisions.
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Instructions
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Create a new line in your balance sheet under "Current Assets" called "Inventory." The order doesn't matter, but most accountants prefer to list inventory right after "Cash" and "Accounts Receivable" on the balance sheet.
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Take inventory of all of the goods in stock and count the dollar total. In most cases, the value will be determined by the cost you paid for the goods (not the retail price of the goods). Use this question to determine the value: what would it cost you to replace the goods in your possession if they were lost, stolen or damaged? Be sure to include any returns that you received back from customers in your total for inventory.
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Add the value of any raw materials that you have in your possession that will be used to produce goods--these are assets too even though they haven't been formed into sellable goods yet. (This would only apply to a company that manufactures its own products for sale.)
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Write in the inventory balance in dollars. Round the amount up or down to the next whole dollar.
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Add the inventory in with your other assets to get your total current assets and record that total at the bottom of this section of your balance sheet.
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Tips & Warnings
If you have allowances that have reduced the value of your inventory, such as damage to the goods caused by an employee or customer, be sure to account for this in your inventory value. Also, keep a separate accounting of the damage to the products and the returns since there is a returns and allowances section on business tax forms. Schedule an inventory check once a month (or every other month) so that you won't be pressured with gathering all of this information at the end of the year or period. This way you will also be able to catch unusual trends in your stock, such as missing items.
