Inventory Definition

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The definition of inventory is simply any goods held by a company that hasn’t yet been sold or used yet.  

Inventory Definition from InvestorWords.com:

A company’s merchandise, raw materials, and finished and unfinished products which have not yet been sold. These are considered liquid assets, since they can be converted into cash quite easily. There are various means of valuing these assets, but to be conservative the lowest value is usually used in financial statements.

Inventory Definition from BusinessDictionary.com:

Value of materials and goods held by a firm (1) to support production (raw materials, sub-assemblies, work in process), (2) for support activities (repair, maintenance, consumables), or (3) for sale or customer service (merchandise, finished goods, spare parts). It is often the largest item in the current assets category, and must be accurately counted and valued at the end of each accounting period to determine a firm’s profit or loss. Firms whose inventory items have a large unit cost generally keep a day to day record of changes in inventory (called perpetual inventory method) to ensure accurate and on-going control. Firms with inventory items of small unit cost generally update their inventory records at the end of an accounting period or when financial statements are prepared (called periodic inventory method). The value of an inventory depends on the valuation method used, such as first-in, first-out (FIFO) method or last-in, first-out (LIFO) method. GAAP require that inventory should be valued on the basis of either its cost price or its current market price whichever is lower of the two to prevent overstating of assets and earning due to sharp increase in the inventory’s value in inflationary periods. The optimum level of inventory for a firm is determined by inventory analysis. Called also stock in trade, or just stock.

Companies need inventory because it is impossible to forecast demand 100% accurately and because problems can occur along the supply chain that will necessite some form of backup in case of loss, obsolescence, damage, market fluctuation, production error etc. 

The inventory definition is only the starting point of inventory management, so please have a look at relevant posts to get better insight.