Meaning of Inventory in accounting system Posted by birendra kunwar on 9:45 PM

1) Held for sale in the ordinary course of business.

2) In the process of production for such sale.

3) To be currently consumed in the production of goods or services to be available for sale.

From the above definition it is clear that any stock that a firm keeps to meet its future requirement of production and sales is called inventory . The principal types of inventories are , raw material and supplies, goods in process and finished goods. Raw material represents goods kept by a manufacturing firm prior to their being utilized in the production process . Supplies generally include tools , stores and spares which are consumed in the production of goods and services. Goods in process represent the semi-finished goods. They include those materials that have been committed to production process but have not yet been converted in to finished goods are completed goods awaiting sales.

The nature of inventory depends on the type of activity carried on . In case of manufacturing unit , inventory will generally include all types of inventories mentioned above , which in case of a trading concern, it will comprise only finished goods or stock in trades owned by it for sale to customers in the normal course of business.