Products coming into your inventory in, say, July might not be sold until November. The acquisition is recorded in July, the product lives in your showroom or storeroom (and, incidentally, on the balance sheet) for five months, and then it is shipped out (at which time the appropriate amount is charged to cost of sales). Figure 13.4 shows the mechanics. This can become quite complex, when you have inventory of raw materials, components, work-in-progress and finished goods – for many product lines.

Fig 13.4. Tracking inventory

The book value of inventory can include shipping and handling costs. For work-in-progress and finished goods, ...

Get The Definitive Guide to Business Finance: What smart managers do with the numbers, Second Edition now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.