Is Inventory an Asset?

In accounting, everything falls into one of five categories: assets, liabilities, expenses, revenue and equity.

You may think that’s all very straightforward:

• Assets are what you own
• Expenses are what you pay
• Revenue is what you earn
• Liabilities are what you owe
• Equity is what you’re worth

Unfortunately, it’s a little more complicated than that. Take inventory for example. It costs you money, so that means it’s an expense. But once it’s in your warehouse, you own it. That means it’s an asset. But it costs money to keep it in the warehouse. You need to store it, insure it, manage it, so maybe, it’s actually a liability? As you can see, it’s not so straightforward after all. Yet the underlying goal of business is to maximise your revenue, accumulate assets, and minimise expenses and liabilities. How can you do that when you don’t even know which is which? This is why financial literacy training is essential for financial success. Knowing what your assets are and how to increase them improves your ability to make financially sound decisions. For example, the answer to our riddle above is that inventory is in fact an asset. It’s valuable, and can be turned into cash. Spending money on inventory is therefore a good thing. It allows you to make sales and generate revenue – another good thing. If you’re not quite sure what is what, it’s difficult to tell when decisions are financially ‘good’ or ‘bad’. With an investment in financial literacy training, you’ll see things differently. You’ll know what your assets and liabilities are, how your decisions will affect them and how to ensure it all positively affects your overall revenue and profit. Colour Accounting™ is our financial literacy course. Click here to secure your place. [traininglist slug=”colour-accounting-normal”]  ]]>