Inventory
from class:
Financial Accounting I
Definition
Inventory refers to the goods and materials that a business holds for the purpose of resale. It is considered a current asset on the balance sheet since it is expected to be sold within a year.
5 Must Know Facts For Your Next Test
- Inventory is classified as a current asset on the balance sheet.
- It includes raw materials, work-in-progress, and finished goods.
- The valuation of inventory can significantly affect a company's financial statements and profitability.
- Common methods for inventory valuation include FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and Weighted Average Cost.
- Inventory turnover ratio measures how efficiently a company turns its inventory into sales.
Review Questions
- How is inventory classified on the balance sheet?
- What are the common methods used for valuing inventory?
- Why is inventory turnover ratio important in financial accounting?
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