Inventory refers to the goods a business holds for eventual resale or use in its operations. It includes items like finished products, raw materials, work-in-progress goods, and supplies. On the other hand, non-inventory items are assets that are not intended for sale or aren’t part of regular merchandise. These might include office equipment, furniture, fixtures, or even intangible assets like patents and trademarks. While inventory is directly related to the core business operations, non-inventory items support those operations indirectly.
Inventory:
- Types of Inventory: There are various types of inventory, such as raw materials, work-in-progress, finished goods, and MRO (maintenance, repair, and operating supplies).
- Purpose: Inventory is directly related to a company’s primary operations. For retailers, it’s the goods they purchase for resale. For manufacturers, it includes raw materials and partially finished goods. Keeping optimal inventory levels is crucial to meet customer demand without overstocking.
- Valuation: Accounting methods like FIFO (first in, first out) or LIFO (last in, first out) are used to value inventory for financial reporting and tax purposes.
Non-Inventory:
- Assets: Non-inventory items encompass a wide range of assets that a company owns but does not intend for sale.
- Types: This category includes tangible assets like machinery, office equipment, furniture, and fixtures. It also encompasses intangible assets such as patents, trademarks, copyrights, and goodwill.
- Purpose: Non-inventory items support business operations indirectly. For instance, office furniture and equipment facilitate administrative tasks, while patents and trademarks protect intellectual property.
- Accounting Treatment: Non-inventory items are often categorized as fixed assets or intangible assets and are recorded on the balance sheet. Depreciation or amortization is applied to allocate their costs over their useful lives.
While inventory is directly involved in the production or sale of goods and services, non-inventory items are assets that contribute to the company’s overall functioning and value but are not part of the core products or services offered. Both are crucial for the smooth functioning and success of a business, albeit in different ways.