Inventory Basics & Systems

Concept

What Is Inventory?

Inventory represents goods held for sale in the ordinary course of business. For a retailer, this is merchandise. For a manufacturer, it includes raw materials, work-in-process, and finished goods.

Concept

Perpetual vs. Periodic

A perpetual system updates inventory records after every purchase and sale in real time. A periodic system only updates inventory at the end of the period via a physical count. Most modern businesses use perpetual systems.

Key Point

Cost of Goods Sold

COGS = Beginning Inventory + Purchases - Ending Inventory. This is the cost of the inventory that was actually sold during the period and appears on the income statement.

FIFO (First-In, First-Out)

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Practice questions from this module to reinforce what you learned.

Practice Questions