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What is Inventory?

Michael Pollick
Updated May 16, 2024
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Inventory is the total amount of goods and/or materials contained in a store or factory at any given time. Store owners need to know the precise number of items on their shelves and storage areas in order to place orders or control losses. Factory managers need to know how many units of their products are available for customer orders. Restaurants need to order more food based on their current supplies and menu needs. All of these business rely on an inventory count to provide answers.

The word 'inventory' can refer to both the total amount of goods and the act of counting them. Many companies take an inventory of their supplies on a regular basis in order to avoid running out of popular items. Others take an inventory to ensure the number of items ordered matches the actual number of items counted physically. Shortages or overages after an inventory can indicate a problem with theft (called 'shrinkage' in retail circles) or inaccurate accounting practices.

Restaurants and other retail businesses which take frequent inventories may use a 'par' system based on the results. The inventory itself may reveal 10 apples, 12 oranges and 8 bananas on the produce shelf, for example. The preferred number of each item is listed on a 'par sheet', a master list of all the items in the restaurant. If the par sheet calls for 20 apples, 15 oranges and 10 bananas, then the manager knows to place an order for 10 apples, 3 oranges and 2 bananas to reach the par number. This same principle holds true for any other retail business with a number of different product lines.

Companies also take an inventory every quarter in order to generate numbers for financial reports and tax records. Ideally, most companies want to have just enough inventory to meet current orders. Having too many products languishing in a warehouse can make a company look less appealing to investors and potential customers. Quite often a company will offer significant discounts if the inventory numbers are high and sales are low. This is commonly seen in new car dealerships as the manufacturers release the next year's models before the current vehicles on the lot have been sold. Furniture companies may also offer 'inventory reduction sales' in order to clear out their showrooms for newer merchandise.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Michael Pollick
By Michael Pollick , Writer
As a frequent contributor to SmartCapitalMind, Michael Pollick uses his passion for research and writing to cover a wide range of topics. His curiosity drives him to study subjects in-depth, resulting in informative and engaging articles. Prior to becoming a professional writer, Michael honed his skills as an English tutor, poet, voice-over artist, and DJ.

Discussion Comments

By anon276122 — On Jun 22, 2012

Inventory management is the total quantity of finishing, raw, non finishing, material store and warehouse and the cost and total quantity of material.

By anon178665 — On May 21, 2011

describe the meaning of the category of inventory and explain why it is critical to manage each element.

By anon160575 — On Mar 16, 2011

You should record 200 tires as your inventory. Though you have assembled 50 tires but you have not sold it. And still it's on your cost, as long if it's not sold. Thanks, Jillu

By anon114018 — On Sep 27, 2010

how to create an inventory without using a database?

By Foramefer Pilapil — On Sep 25, 2010

Can the system stand without a database? how important is the database?

By anon103650 — On Aug 13, 2010

You should write 3 Kilo as your inventory. Though you have processed 2 Kg of chicken but you have not sold it. And still it's on your shelf. Thanks, Chandra

By anon97052 — On Jul 18, 2010

let me know any formula to keep the best inventory system in automobile spare parts.

By anon78304 — On Apr 18, 2010

How can we calculate the depreciation for all assets and our organization’s inventory?

regards, Ahmad Shah.B

By anon65504 — On Feb 14, 2010

for the second question above, 200 tires are to be recorded as because none of the bikes are sold.

By anon57842 — On Dec 28, 2009

I would like to know how to compute the safety stock quantity? Do you have any formula for it?

If so, then i would appreciate it if you can help me?

By anon55842 — On Dec 10, 2009

My bicycle shop has 200 tyres. I used 50 to assemble 25 bikes. None are sold yet so how many tires should I record in my inventory: 200 or 150?

By anon53719 — On Nov 24, 2009

describe the meaning of the category of inventory and explain why it is critical to manage each element.

By anon47252 — On Oct 03, 2009

what is tedious and time consuming in tracking inventory?

By anon44733 — On Sep 10, 2009

How does a person maintain inventory details?

By anon43718 — On Sep 01, 2009

what are the main reasons that an organization has inventory?

By anon43231 — On Aug 26, 2009

i am first timer doing a system. how do i start a system and where i can build it?

By anon43052 — On Aug 25, 2009

How often do you think an inventory is to be taken?

By anon40927 — On Aug 11, 2009

So an inventory means a group of articles is that right? --Chris

By anon37996 — On Jul 23, 2009

is it really worth it to have an inventory system? Most organizations can tell you an item is there in the inventory systems but physically it doesn't exist.

By anon36624 — On Jul 13, 2009

why it is used and how it is used........ if it is not used what happens and what are the benefits of the client server computing: inventory tracking system

By anon23985 — On Jan 06, 2009

how can we program the inventory? can you give examples?

By anon22064 — On Nov 27, 2008

i am working with MS NAVISION. in purchase module v have got inventory. so can anybody get me an idea about usage of inventory in purchase department?

By anon21265 — On Nov 13, 2008

why valuation of inventory is required at the end of the each accounting period?

By anon14033 — On Jun 09, 2008

What is Master Data Management and why it is being used?

By anon8357 — On Feb 12, 2008

Advantages & disadvantages of inventory. Is inventory good or bad?

By anon2707 — On Jul 22, 2007

Closing Stock would be opening stock, plus purchases, less goods sold.

By anon1798 — On Jun 15, 2007

If in the opening inventory of my restaurant I had 5 kilograms of fillet chicken breast, and I've sold 2 kilograms and during operation I prepare another 2 kilo, at the ending inventory I should write 1 kilo or 3 kilo? Thanks for your help. STH

Michael Pollick

Michael Pollick


As a frequent contributor to SmartCapitalMind, Michael Pollick uses his passion for research and writing to cover a wide...
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