Inventory

2026-03-06 The goods a business holds for sale or use in production — raw materials, work-in-progress, and finished products — representing cash tied up in physical stock.

Inventory is the stock of goods a business holds: raw materials (ingredients, components), work-in-progress (partially prepared items), and finished goods (ready-to-sell products). It appears as a current asset on the balance sheet because it represents value the business owns but has not yet sold.

Inventory is cash in physical form. Money spent on inventory is unavailable for other purposes until the inventory is sold. For perishable goods (food, flowers, dairy), unsold inventory has a hard expiration — it becomes waste, not just a holding cost. This makes inventory management especially critical for food businesses.

Key inventory concepts: par levels (the target quantity to keep on hand), FIFO (first in, first out — use the oldest stock first), inventory turnover (how many times inventory is sold and replaced per period — higher is generally better), and shrinkage (inventory loss from waste, theft, spoilage, or recording errors).

See Supply Chain and Risk Management and Food Costing and Waste Reduction.

Relations

Component of

Balance sheet

Date created

2026-03-06

Date updated

2026-03-09

Governed by

Fifo

Measured by

Inventory turnover