Inventory includes finished units of a product being held for sale, as well as unfinished works in process, and any raw materials used to manufacture goods. It is recorded as a current asset on the company’s balance sheet.
For example, a hardware distributor's balance sheet shows $340,000 in inventory at year-end — including $180,000 in finished products ready for sale, $90,000 in goods in transit, and $70,000 in raw materials — all of which are current assets expected to generate revenue.
Why it matters: It ties up massive amounts of cash and risks obsolescence; managing inventory efficiently is critical for maintaining healthy working capital.
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