A company’s inventory includes any finished units of product it is holding for sale, any unfinished units of products (works in process), and any raw materials it owns to manufacture goods. The total value of a company’s inventory appears under assets on the balance sheet.

Inventory is considered a current asset because businesses typically use it, convert it to cash and replenish it several times within a normal operating cycle (usually less than 12 months). However, inventory is less liquid than other current assets (for example, accounts receivable) because it is harder to convert into cash.

To speed up the conversion of inventory to cash, companies can sell off products at a discount, prioritize the completion and sale of works in process, return raw materials to suppliers for credits or sell them to another company, usually at a discount.

More about inventory

Current assets are listed from most liquid to least liquid on the balance sheet. The balance sheet below shows ABC Co. owned $50,000 of inventory as of March 31, 2012. It follows cash and accounts receivable to indicate it is less liquid.

Example of how the inventory a company owns is shown on a balance sheet