How to Categorize Inventory

Inventory is stock of commodities, held by a business for resale. Inventory is categorized according to its stage from raw unprocessed materials to finished products available for customers to obtain.

Raw materials are unprocessed components used for the manufacture of a desired product. Raw materials can be attained from nature and some components can be purchased from other companies.

Work in progress is inventory that is partially completed but still needs some work to be done in order for the stock to become ready for the market.

Finished goods that have been fully processed and though completed, they are still in store and are not yet sold.

Stock of cash inventory is the financial manager may hold as a means of cash to pay bills; without taking into account the accounts receivable leverage.

To effectively manage inventory records, the rate at which inventory is turned into cash has to be taken into account. Storage space and cost are other factors that should be considered.

It is important to note that stock is valuable asset into which investment money is for therefore it requires as diligent management and safe keeping as cash.

Sound record keeping of the flow of inventory from the raw materials to the finished product and cash is important in order to operate an effective and profitable business.