UK Accounting Glossary
Stocks of goods held for manufacture or for resale.
Inventory is often the largest item in the current assets category and must be accurately counted and valued at the end of each accounting period to determine a company’s profit or loss. Organisations whose inventory items have a large unit cost generally keep a day to day record of changes in inventory (called perpetual inventory method) to ensure accurate and on-going control.
Organisations with inventory items of small unit cost generally update their inventory records at the end of an accounting period or when financial statements are prepared (called periodic inventory method). The value of an inventory depends on the valuation method used, such as first-in, first-out (FIFO) method or last-in, first-out (LIFO) method. GAAP requires that inventory should be valued on the basis of either its cost price or its current market price whichever is lower of the two to prevent overstating of assets and earning due to sharp increase in the inventory’s value in inflationary periods. The optimum level of inventory for an organization is determined by inventory analysis. Called also stock in trade, or just stock.
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This glossary post was last updated: 23rd December 2018.