Inventory (Inventory), is a company asset that occupies an important position in a company, be it a trading company and industrial companies (manufacturing), let alone a company engaged in construction, almost 50% of funds will be embedded in a stock company which is to purchase materials building materials.
Inventory trading companies:
Inventories are goods purchased by the company for the purpose of resale without altering the shape and quality of goods, or it can be said there is no production process since the goods purchased to be resold by the company.
Inventory industrial companies:
Sense inventory for industrial companies are goods or materials purchased by the company with the goal to be further processed into finished or semi-finished goods or raw materials may be for other companies, this depends on the type and the company’s key business processes.
For example: Company industrial demand for cotton, the raw material is cotton from farmers or plantations, processed into yarn, the yarn is finished for him. While the company’s industrial fabric raw material is processed into yarn fabrics as finished goods, and corporate apparel industry requires raw materials of cloth and so on.
With the picture above, the inventory for manufacturing companies generally have three types of supplies are:
- Raw materials (direct material)
- WIP (Work in process)
- Finished goods (Finished goods)
Raw materials:
Goods inventories of the company that will be processed again through the production process, so it will be semi-finished goods or finished goods according to the company’s activities. The amount of raw material inventory influenced by the estimated production, the seasonal nature of production is reliance on the suppliers and the level of efficiency of scheduling purchases and production activities.
Goods in process:
Are items that still require the production process to be finished, so the supply of goods in process is strongly influenced by the duration of production, namely the time it takes from the moment raw materials enter the production process until the completion of finished goods. Inventory turnover can be improved by shortening the duration of production. In order to shorten the production time one way is by improving engineering techniques contained, so that processing can be accelerated. How to assessments is to buy the ingredients and not make it your own.
Finished goods:
Is goods production process results in a final form that can be readily sold, the size of the inventory is finished goods inventory is actually a problem of coordinating production and sales. Financial managers may stimulate an increase in sales by changing credit terms or by providing credit to small risk (marginal risk). But no matter whether the items listed as inventory or as accounts receivable, financial managers must still pay for it. Actually, companies prefer to sell it (and recorded as accounts receivable), for then to get to the realization of cash to stay one step only. And the potential profits can cover additional collection of accounts receivable risk.
From the description we can interpret that in the process of inventory accounting, inventory requires an appraisal (valuation), because the inventory is part of the cost that would be matched with revenue, and will generate income and cash flow statement presentation.
By looking at the fundamental properties of inventories in relation to corporate activities and objectives and the basic concepts of accounting, the inventory is the input values. The method is one concept of inventory valuation that will be the basis in preparing the balance sheet.
The emphasis of the discussion of the purpose of inventory accounting theory, is to determine guidelines for evaluating alternative procedures that can provide an assessment (measurement) the better and give better information about the company’s future cash flows. Some basic measurements of inventory levels are in terms of interpretation and revaluation of investment decision.
