What is inventory?

business.gov.au says inventory, also known as trading stock, covers what a business acquires or produces so that it can sell or exchange it. Its glossary gives the two words slightly different meanings: inventory is a list of the goods or materials held for sale, while stock is the goods or materials on hand.

Its inventory management guide suggests listing every item you stock with its name or code, a description, the quantity, supplier details, and its cost and selling price, then grouping items by product type, location or inventory type. It also suggests setting a reorder point for each item, the lowest level you want to hold before ordering more.

Its balance sheet template lists inventory among current assets. Its guidance on improving cash flow ties stock to cash: unsold stock holds money the business could otherwise use. It suggests keeping stock levels from running too high, clearing items that are not selling or are out of date, and considering buying stock only when a customer orders.

• Listing tools and equipment the business keeps for its own use as inventory, alongside the goods it sells.
• Recording sales in the stock records but not customer returns, goods sent back to suppliers or damaged items.
• Judging the business's position from the inventory figure without checking how much of that stock is slow to sell.