Definition of Inventories
Inventories are goods and
raw materials that are in stock in an organization. Inventories can be of three
types: raw materials, work-in-process and finished goods. Inventories are
considered as an asset to any business firm. So, all the categories of stock in
the production process fall into the definition of inventories that are ready
or will be ready for sell. This is presented in the balance sheet as an asset.
Importance of inventories
To show the complete
financial picture of an organization, organizations must count all categories
of inventories in the production process as they have certain value and that
are also assets to the firm. As it is presented in the balance sheet as asset,
any mistake of not including any inventories will cause the firm to take wrong
decisions in many instances as that will not show the true picture of the firm.
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