Inventory
Inventory is an asset representing goods held for sale or materials and partially completed units awaiting further processing, carried on the balance sheet at cost.
Also known asstock
See it move
A four-step flow diagram follows 200 chairs purchased at €40 each (€8,000 total) from acquisition to disposal. The chairs first enter the inventory bin as a current asset on the balance sheet; when 150 are sold, €6,000 exits as cost of goods sold on the income statement; the 50 unsold chairs (€2,000) remain in the closing inventory balance. The three connectors — "enters at cost", "exits when sold", and "unsold stays" — describe what triggers each movement.
The formula
Variables
- Purchases (trading firm) or cost of goods manufactured (manufacturer) added in the period (€)
Rearranged to find COGS: COGS = Beginning Inventory + Additions − Ending Inventory.
Check yourself
A food manufacturer purchases 500 kg of raw ingredients for €2,000. By the end of the period, 400 kg have been processed and the finished goods sold to customers; 100 kg remain in the warehouse. Which statement correctly describes the accounting treatment?
If you trained under a national GAAP
DE · HGBWhere national-GAAP intuition diverges from the international standard
HGB (German)
HGB requires inventory to be measured at the lower of cost or market (the Niederstwertprinzip), where market for raw materials is replacement cost and for finished goods is net realisable value, producing a conservative carrying amount. LIFO has been a permitted cost-flow assumption under HGB, so certain German entities carry inventory at older, potentially much lower prices than current purchase cost — a result that differs both in valuation basis and in the amount reported on the balance sheet.
IFRS
IAS 2 requires inventory to be carried at the lower of cost and net realisable value, using only the FIFO or weighted-average cost formula; the LIFO method is explicitly prohibited. A German company that previously used HGB-LIFO will typically report a higher inventory balance after restating to IFRS, increasing both total assets and opening equity at the transition date.