Inventory Management - Definition and Its Classes

Inventory

management

INVENTORIES“Assets which are held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process or in the rendering of services”- Philippine Accounting Standards (PAS) No. 2

INVENTORIESFirms try to minimize cost by reducing inventory levels.

INVENTORIESCost minimization is the major factor in obtaining this delicate balance.

An inventory level for finished goods is a direct function of demand.

INVENTORIES

INVENTORIESA hospital has methods to control blood supplies and other important medical items.

INVENTORIES- The common

thread that ties all the functions and the departments of an organization together.

Classes of Inventories

Classes of Inventories

Classified as current assets in the balance sheet.

1. Raw materials inventory

- It consists of basic materials purchased from other firms to be used in the production of goods or products.

Classes of Inventories

Classified as current assets in the balance sheet.

2. Work-in-process inventory

- It consists of partially finished goods requiring additional work before they become wholly completed.

Classes of Inventories

Classified as current assets in the balance sheet.

3. Finished goods inventory

- This inventory consists of completely manufactured goods that are not yet sold.

4. Supplies

- These are materials regularly used by the company but do not form part of the finished goods sold.

Classes of Inventories

Classified as current assets in the balance sheet.