The phrase "stock-in-trade" is often used informally to refer to a skill or characteristic a person is known for, usually in a professional context. However, stock-in-trade is also a term used in business to describe the ready resources that are essential for carrying out a firm's operations. When stock-in-trade is used in this context, it has a precisely defined meaning that's different than its informal usage. It's important for businesspersons to understand the meaning of stock-in-trade because the term is often used for legal and accounting purposes.
The Meanings of Stock-in-Trade in Common Usage
The phrase "stock-in-trade" has multiple definitions and a business owner or manager needs to know how to sort them out. As used by many people, stock-in-trade refers to an activity or good produced by an individual or organization in order to make a living or earn a profit. For example, the stock-in-trade of author Stephen King is the horror story. Fast food is the stock-in-trade of companies like Wendy's and Burger King.
In business, stock-in-trade means resources or assets used to operate a business. However, stock-in-trade is often used interchangeably with other terms. Thesaurus.com lists several such stock-in-trade synonyms, including cash flow, inventory, supply and stock. Informal usage of stock-in-trade to mean these things should be avoided because they don't accurately reflect the legal or accounting definitions.
The Meaning of Stock-in-Trade in Law
Suppose you operate a restaurant. Your stock-in-trade includes the ingredients needed to prepare menu items as well as other consumable materials, such as napkins and cleaning supplies. Stock-in-trade also includes the equipment and tools needed to prepare and serve the food, such as:
- kitchen utensils
For a manufacturing business, stock-in-trade includes tools, supplies and production equipment as well as raw materials, work in progress and finished goods.
Meaning of Stock-in-Trade in Accounting
Stock-in-trade is defined in a slightly different way for accounting purposes than it is in law. Accounting records and financial statements list inventory and stock-in-trade as separate items. In other words, the meaning of stock-in-trade in accounting is the legal meaning except with inventory assets excluded. For instance, a profit and loss statement might have an entry under expenses for "raw materials, work in progress, finished goods and stock-in-trade." An entry for purchases of stock-in-trade wouldn't include the purchase cost of any inventory since that's listed elsewhere on the statement.