A current asset whose ending balance should report the cost of a merchandiser's products awaiting to be sold. The inventory of a manufacturer should report the cost of its raw materials, work-in-process, and finished goods. The cost of inventory should include all costs necessary to acquire the items and to get them ready for sale.

When inventory items are acquired or produced at varying costs, the company will need to make an assumption on how to flow the changing costs. See cost flow assumption.

If the cost to replace inventory is less than the actual cost of the inventory, it may be necessary to reduce the inventory amount. See lower of cost or market.

To learn more about inventory, see our Inventory and Cost of Goods Sold Outline.