Stock (inventory)

Stocks (called inventory in the US and sometimes in Britain) are current assets held for sale, or for processing and subsequent re-sale.

Stocks should be valued at the lower of:

Socks may consist of:

  • goods that will be sold as they are: finished goods for a manufacturer, most stocks for a retailers
  • work in progress: unfinished goods
  • raw materials.

The cost of stocks of the same type changes with time. It is also neither useful nor practicable to separately track identical items. This means that the cost of stocks has to be appropriately allocated when they are used or sold. How this is done has an impact on both the balance sheet and the P & L. Most commonly FIFO is used which assumes that the first items to be bought are the first to be sold. Other methods such as LIFO and replacement cost are also used.

The valuation of any goods that have been processed (including work in progress) adds some complications as it is necessary to decide which costs can be allocated to which items.

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