Types of Inventory and Stock in trade



(a) RETAIL–WHOLESALE. Wholesalers and retailers typically acquire merchandise that is ready for resale to customers. Acquisition cost becomes the basis for carrying the inventory until it is sold.

(b) MANUFACTURING. In a manufacturing operation, a production process creates goods for sale to customers or for use in other operations. Manufacturing inventories often are categorized by stage of completion.

(i) Raw Materials. Goods to be incorporated into a product or used in the production process that have not yet entered the process are referred to as raw materials inventory. The output from one process can become the raw material for another process (e.g., subassemblies).

(ii) Work in Process. Goods typically are classified as work in process inventory as soon as they are drawn from raw materials stock and enter the manufacturing process.

(iii) Finished Goods. Products that are complete and ready for sale are considered finished goods inventory.

(iv) Supplies. Materials necessary for the manufacturing operation but not a significant component of the final product are known as supplies inventory. For example, small incidental screws may be considered supplies inventory, or oil used to lubricate a grinding machine may be considered supplies inventory. The ARB No. 43 specifically mentions manufacturing supplies as a type of inventory and notes that the fact that a small portion of the supplies may be used for purposes other than production does not require separate classification.

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