Accounting Terms Inventory

Inventory

Goods held for sale in the ordinary course of business

Raw Materials

Basic materials used to make finished goods

Work-in-Progress (WIP)

Partially completed goods in production

Finished Goods

Completed products ready for sale

Cost of Goods Sold (COGS)

Cost of inventory sold during a period

Inventory Valuation

Process of assigning cost to inventory

FIFO (First-In, First-Out)

Oldest inventory sold first

LIFO (Last-In, First-Out)

Newest inventory sold first

Weighted Average Cost

Inventory costing method averaging all units

Specific Identification

Assigning actual cost to each inventory item

Perpetual Inventory

System continuously updating inventory records

Periodic Inventory

System updating inventory at period end

Inventory Shrinkage

Loss of inventory due to theft, damage, or error

Inventory Turnover

Number of times inventory is sold and replaced in a period

Days in Inventory

Average number of days inventory is held

Gross Profit Method

Estimating ending inventory using gross profit %

Retail Inventory Method

Estimating inventory cost using retail prices

Obsolete Inventory

Inventory that is no longer usable or sellable

Slow-Moving Inventory

Inventory that sells slower than normal

Excess Inventory

Inventory exceeding expected demand

Lower of Cost or Market (LCM)

Valuing inventory at the lower of cost or market price

Write-Down

Reducing inventory value when market value < cost

Consignment Inventory

Inventory held by a business but owned by another

Inventory Turnover Ratio

COGS ÷ Average Inventory

Stock Keeping Unit (SKU)

Unique identifier for each inventory item

Inventory Control

Methods to manage inventory efficiently

Reorder Point

Inventory level triggering a new purchase order

Safety Stock

Extra inventory held to avoid stockouts

Carrying Cost

Cost to hold inventory (storage, insurance, etc.)

Backorder

Order for inventory not currently in stock

Physical Inventory

Actual count of inventory on hand