Does Inventory on Hand Go on a Profit and Loss Statement?
The three primary financial statements provide different information that helps deliver a well-rounded perspective of a company's financial heath. The balance sheet shows how well a company manages its assets and resources. Like all other assets, inventory on hand appears on the balance sheet. For product sellers -- including distributors, resellers and direct-to-market manufacturers -- analysis of inventory on hand and other inventory provides key data regarding how products are or are not performing.
The profit and loss statement, also referred to as the P & L statement or the income statement, records your company's revenues, expenses and resulting profits or losses. It reflects your company's operating performance over a specified period. The income statement shows a number of accounting components, including cost of goods sold, selling and general administrative expenses, depreciation and taxes. Cost of goods sold, or COGS, is the direct cost of any product you purchased wholesale or manufactured; it includes raw material costs, delivery and direct labor. The cost of the inventory that you sold is reflected in COGS.
The balance sheet provides a snapshot of your company's assets, liabilities and owner's equity at a given moment. Both assets and liabilities are separated into short-term and long-term items. Short-term assets include cash, accounts receivables and inventory; inventory on hand falls into this category. Short-term liabilities include accounts payable and customer deposits. Long-term assets include real estate, equipment, computers and office fixtures. Long-term liabilities include mortgages and term loans. Equity is any non-loan contribution you made to your company to cover startup, ongoing operations and growth, and it includes retained earnings.
Inventory on hand represents items that your business has available for sale or rental. For online or offline retail stores, inventory on hand represents items purchased wholesale and readily available for sale to customers. It is also inventory remaining from a prior period. You can determine the amount of inventory on hand by physically counting the items, or you can subtract any purchases or sales of inventory since the previously determined amount shown on an earlier balance sheet.
The balance sheet reflects the inventory on hand at any given time. Updating your balance sheet every month provides more data to help you identify trends. By paying close attention to the levels and types of inventory on hand, you can adjust your company's purchases to more closely meet your customers' demands.