Frequently, Stock and inventory are used interchangeably; however, they have different meanings. It is essential to comprehend that using the two terms interchangeably is inaccurate and might be deluded about its financial strength.
So, here is all the important information you need to know about the differences between Stock and inventory.
What are inventory and things you need to know about inventory?
- Inventory alludes to the finished product ready to dispense, the work-in-progress goods that aren’t converted into finished items, and the crude material used to make the finished item.
- Mostly, we find inventory in manufacturing companies.
- So, there usually are costs associated with keeping up inventory at optimum levels, which the top administration chooses.
- So, inventory is recorded in the accounting books in 3 distinct ways.
- These incorporate the weighted standard strategy, Last In First Out (LIFO) and First In First Out (FIFO) methods.
- Note that every strategy has its ramifications on the income statement, mainly if there are fluctuations with the costs in the raw material.
- Therefore, understand that changing the inventory accounting methods is considered as a manipulation of the income statements.
What is Stock and things you need to know about Stock?
- Stock alludes to the finished product that is ready to sell in the market.
- Note that Stock can likewise incorporate raw material if the organization is answerable for selling raw material.
- The worth of the Stock relies upon the expense of acquisition or the market price, contingent upon whichever is less.
- However, when Stock is sold, it will be deducted from the balance sheet added to the profit and loss statement as revenue.
What are the main differences between Stock and inventory?
- Inventory involves raw material, work in progress, and finished products, while Stock includes only finished products.
- Accounting for inventory is conducted on a quarterly premise, while for the most part, stock accounting is done on an everyday premise.
- Inventory should be kept up at an optimum level; optimum level is a level where profit maximizing is possible. Ideally, zero Stock is ideal; however, the organization should produce enough to satisfy the market’s needs.
STOCK V/S INVENTORY.
|POINTS OF COMPARISON||INVENTORY||STOCK|
|Consists of||Raw materialWork in progressFinished Product||Finished productsRaw Material (If a company sells directly)|
|Valuation||The cost incorporated by the company using methods such as LIFO, FIFO, and Average cost method is used in determining the value of inventory.||The value of Stock is determined by the market price, which is the selling price at which the finished goods are sold.|
|The Revenue||Inventory takes into account all the assets of a business used to produce the goods it sells. Also, inventory helps determine the sale price of the Stock.||As mentioned, the Stock is used to determine the total amount of revenue generated by the business. The higher the Stock sold, the higher the revenues.|
|Maintained on||Quarterly basis||Daily basis|
- There are situations where inventory is frequently mistaken for assets. Nonetheless, a few assets have various classes.
- The ideal approach to separate inventory, stock, and assets is by figuring out what stays in business other than customer sales.
- Therefore, it’s judicious to keep every one of the distinctions separate to keep up precise accounting records.
- If you need assistance dealing with your inventory, look no further than Vardaan Solutions.
- However, if you need to know more about stock v/s inventory, you can head to this article.