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Stock/Inventory

‘Stock’ and ‘Inventory’ mean the same thing. Stock refers to a supply of raw materials, spare parts, merchandise, semi-finished goods or finished goods depending on the type of business. It is held on hand at a certain level to support production, manufacturing or processing by the seller or bought by the seller for resale. Inventory is a company’s entire stock of materials, unfinished goods or finished products that the company normally sells at a price higher than what it costs to process, manufacture or buy in order to return a profit.

Some examples of inventory or stock are houses, machinery, electronic components, clothing, flowers, etc.  A seller’s stock can be any item as long as it is what the seller normally deals in. To a trader (wholesaler, distributor or retailer), stock is a list of finished goods bought for resale; to a manufacturer, it is raw materials, components, parts, etc to be used in the manufacture or assembly of finished goods.

Stock or inventory is an important asset that merits close attention. Holding too much stock is detrimental to the company’s cash flow, and incurs additional costs due to storage, insurance, rental, etc or losses caused principally by rot, decay and obsolescence.  Too little stock is likely to result in failure to meet demand and thus deter potential customers. It is intended to be sold as soon as possible and is usually sold within an accounting year. It is therefore classified as a current asset. At the end of each accounting period, it is accurately counted, valued and shown at the lower of cost or net realizable value on the balance sheet.

Last Updated (Sunday, 12 September 2010 18:25)