Meanings of Inventory

Meanings of Inventory

The result of an inventory is the inventory and this is divided into the following items, for example:

  • Assets
  • Net worth
  • Debt

In the inventory, the assets are divided into fixed assets and current assets according to their liquidity . The term liquidity is understood as how quickly the asset can be converted back into money.

According to EZHOUSHAN, the net worth – or the equity – is calculated from the difference between the assets and debts.

Carrying out the inventory

In the inventory, a distinction must be made between the physical inventory and the book inventory. In the physical inventory, the physical inventory, such as stocks, finished and semi-finished goods, machines, raw materials, etc. – everything that is tangible is recorded. This inventory involves measuring, estimating, counting and weighing. The results are entered in inventory lists, whereby the condition is also taken into account. The book inventory. It includes the debts, the credit, the liabilities to suppliers and financiers as well as all receivables and these results are also recorded in the accounting records.
An inventory is carried out at the start of business activity and then mandatory once a year and also when the company is closed. A wide variety of application methods are used:

  • Key date inventory
  • Time-shifted / postponed inventory (a shift of up to 3 months)
  • Inventory sampling
  • Permanent inventory
  • Book inventory
  • Physical inventory

The inventory and the registration

The entire inventory is shown as the result of the inventory, both tangible and non-representational values ​​and liabilities. The inventory is shown in a directory that is created during the inventory and includes:

  • All company assets
  • The company’s debts are arranged according to their due date.
  • The company’s net worth / equity

The inventory thus includes all kinds of tangible assets and cash in the company, as well as the company’s financial situation and liquidity. It is important that the recording must be presented completely, it must also be free of errors and correspond to the facts in all points.

The individual items in the inventory

  • The asset and debt positions

Assets and debts can in turn be divided into subordinate categories, with assets being broken down into fixed assets and current assets:

Fixed assets = land, factory buildings, vehicle fleet

Current assets = cash in hand, account balances, receivables

Fixed assets

This consists of items belonging to the company that are not intended for sale and are used exclusively for the production or service process.

  • The current assets

This consists of the assets that are “in circulation”, that is, belong or belong to the company only for a short period of time and are then ultimately implemented.

  • The debts

A similar breakdown needs to be made for inventory debt. The debts are broken down into.

  • Long-term debt (e.g. mortgage debt)
  • Short-term debts (e.g. trade payables)

The inventory and the balance sheet

As already explained, the individual tangible assets are listed in the inventory, which are then summarized in the balance sheet as balance sheet items. For example, machines are listed individually in the inventory with their respective value and number of pieces. These are then assigned to the technical systems and machines account in the balance sheet. The information in the balance sheet, however, relates exclusively to the value of the machines and does not indicate any quantities. The inventory is a list that is recorded in account form during the balance sheet. If there are deviations between the target and the actual stock in the inventory, the target stock must be corrected. These differences then flow into the profit and loss statement in full.

The creation of the inventory on the key date

As a rule, the key date inventory is on December 31. of a calendar year. The stocks must be recorded quantitatively for this inventory and recorded in lists. A deferred inventory may only take place within a period of 10 days before or after the reference date. The inflows and outflows to be recorded between the recording date and the reference date must be updated or recalculated in terms of quantity and value. The value of the goods is calculated on the basis of the acquisition costs and a devaluation for damaged current assets is permitted. But increases in value are not allowed according to the lowest value principle.

The most important things at a glance

  • The compilation of the inventory is the duty of every businessman
  • The inventory must be taken at the beginning, at the takeover or at the end of the commercial operation.
  • In addition, the inventory must be taken at least once a year.
  • The inventory must capture all debts and assets.
  • The inventory must be kept for 10 years