inventory
Walk into a shoe shop and look at the walls of boxes, the racks of sneakers, the back room stuffed with stock waiting to be sold. None of that has been sold yet, but the shop paid real money for all of it, and it expects to turn it into cash by selling it to customers. That pile of goods-waiting-to-be-sold is the heart of what accountants call inventory.
Formally, inventory is the goods a business holds for sale in the ordinary course of business (or, in a factory, the materials and partly finished goods that will become such goods). It is recorded as a current asset on the balance sheet, valued at what it cost to buy or make — not at the price the shop hopes to sell it for. So 100 pairs of shoes that cost 40 each sit on the books as 4,000 of inventory, even if the shop tags them at 90 a pair. When a pair is finally sold, its 40 cost moves out of inventory and becomes an expense called cost of goods sold.
Inventory matters because for a retailer or manufacturer it is often the single biggest asset, and getting its value right is what makes the profit number believable. Hold too little and you lose sales; hold too much and cash is frozen in unsold goods that may go stale or out of fashion. A common misconception is that inventory is recorded at selling price — it is normally carried at cost, and only the act of selling turns that cost into both revenue and an expense.
A bookshop buys 300 copies of a novel at 8 each, spending 2,400. Until they sell, those copies sit on the balance sheet as 2,400 of inventory — not as the 15-a-copy price on the cover. When 100 copies sell, 800 of cost leaves inventory and becomes cost of goods sold, while 200 copies (1,600 of cost) remain.
Inventory is carried at cost; selling moves that cost out as an expense.
Inventory is recorded at cost, not selling price; only when goods are sold does their cost become an expense. Unsold goods stay on the balance sheet, not the income statement.