Inventory Definition

Here we discuss Inventory Definition and What is Inventory in Accounting.

Inventory includes those goods which are held by the business for resale purposes. The inventory is convertible into cash very quickly and it is done within the operating cycle of the business. In British Accounting System, we called Inventory as Stock.

Last Accounting Period Balance of Inventory is Opening Inventory of the current accounting period and current’s year ending Inventory is the beginning of the next accounting period and so on.

Inventory is always measured on Cost or NRV whichever is less. Here NRV is Net Realizable Value that includes all costs incurred in bringing the goods in saleable position. It is calculates as:

NRV = Sales - All Costs Incurred in bringing the goods in saleable position

Closing Inventory is shown in the Income Statement and Balance Sheet while Opening Inventory is shown only in Income Statement.