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Inventory can be defined as tangible property held for sale in the ordinary course of business, or in the process of production for such sale, or for consumption in the production of goods or services for sale, including maintenance supplies and consumables other than machinery spares. Inventories are assets: (a) held for sale in the ordinary course of business; (b) in the process of production for such sale; (c) in the form of materials or supplies to be consumed in the production process or in the rendering of services. Inventories encompass goods purchased and held for resale, for example merchandise purchased by a retailer and held for resale, or land and property held for resale. Inventories also include materials, maintenance supplies, consumables and loose tools awaiting use in the production progress. However, inventories do not include machinery spares which can be used only in connection with an item of fixed asset and whose use is expected to be irregular; such as machinery spares are generally accounted for as fixed assets.
The types of inventories are related to the nature of business. The inventories of a trading concern consist primarily of products purchased for resale in their existing form. It may also have an inventory of supplies such as wrapping paper, cartons and stationery. The inventories of manufacturing concern consist of several types on inventories: raw material, parts and factory supplies, work-in-progress and of course, finished products.
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