Inventory

Inventory is the term for the goods available for sale and raw materials used to produce goods
available for sale. Inventory represents one of the most important assets of a business because
the turnover of inventory represents one of the primary sources of revenue generation and
subsequent earnings for the company's shareholders.

Understanding Inventory 
Inventory is the array of finished goods or goods used in production held by a company.
Inventory is classified as a current asset on a company's balance sheet, and it serves as a buffer
between manufacturing and order fulfillment. When an inventory item is sold, its carrying cost
transfers to the cost of goods sold (COGS) category on the income statement.

Inventory can be valued in three ways. The first-in, first-out (FIFO) method says that the
cost of goods sold is based on the cost of the earliest purchased materials, while the carrying cost
of remaining inventory is based on the cost of the latest purchased materials. The last-in, first-out
(LIFO) method states that the cost of goods sold is valued using the cost of the latest purchased
materials, while the value of the remaining inventory is based on the earliest purchased
materials.2  3 The weighted average method requires valuing both inventory and the cost of goods
sold based on the average cost of all materials bought during the period.

Types of Inventory
Inventory is generally categorized as raw materials, work-in-progress, and finished
goods.2 Raw materials are unprocessed materials used to produce a good. Examples of raw
materials include aluminum and steel for the manufacture of cars, flour for bakeries production
of bread, and crude oil held by refineries.

Work-in-progress inventory is the partially finished goods waiting for completion and

resale; work-in-progress inventory is otherwise known as inventory on the production floor. For
example, a half-assembled airliner or a partially completed yacht would be work-in-process.

Finished goods are products that have completed production and are ready for sale.
Retailers typically refer to this inventory as "merchandise.” Common examples of merchandise
include electronics, clothes, and cars held by retailers.

Last-In, First-Out (LIFO)

 Costs of the latest goods purchased are the first to be recognized in determining cost of
goods sold.
 Seldom coincides with actual physical flow of merchandise.
 Exceptions include goods stored in piles, such as coal or hay
 COST OF GOODS AVAILABLE FOR SALE
Date Explanation Units Unit Cost Total Cost
Jan 1 Beginning Inventory 100 ₱10 ₱1000
Apr 15 Purchase 200 ₱11 ₱2200
Aug 24Purchase 300 ₱12 ₱3600
Nov 27Purchase 400 ₱13 ₱5200
Total 1000 ₱1200

STEP 1: ENDING INVENTORY STEP 2: COST OF GOODS SOLD

₱12000 ÷ ₱1000 = ₱12.00 Cost of Goods Available for Sale ₱12000
Unit Total
Units Cost Cost