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NK Designer

What is the difference between asset and inventory?

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  1. This answer was edited.

    Sure, NK Designer, I would like to share the important key differences between Assets and Inventory. I hope this will help you in understanding and analyzing the concept better.

    Difference between Assets and Inventory-

    S.No.Basis of DifferenceAssetsInventory
    1.MeaningAsset refers to the economic resources that are owned or controlled by an entity or business for deriving short-term and long-term future benefit.Inventory refers to the set of finished goods (or) raw materials used for manufacturing goods to sell them in the market.
    2.TypesAssets are classified into two types namely- Fixed and Current assets. Fixed Assets are further classified into Tangible and Intangible Assets.Inventory is classified into 3 types namely- Raw Materials, Work In Progress and Finished Goods.
    3.Period/DurationFixed Assets are kept in the business for a longer period whereas Current Assets are kept in business for a short period but they are not meant for immediate sale.Inventory is not kept in the business for a longer period. They are meant for immediate sale to generate revenue.
    4.ScopeAssets have a broad scope because they remain in the business for both long-term (Fixed Assets) and short-term (Current Assets).Inventory has a narrow scope because they are quickly converted into revenue by selling them.
    5.Key featuresi) Price (or) value.

    ii) Generates revenue for a longer period.

    iii) Maintenance cost.

    iv) Highly Durable.

    v) Subject to Depreciation.

    i) High liquidity

    ii) Readily accessible to end-users.

    iii) Contributes to working capital management.

    iv) Creates seasonal demand.

    v) Economies of scale.

    6.Methods of Valuationi) Cost Method.

    ii) Base Stock Method.

    iii) Fair value Method.

    iv) Standard Cost Method.

    i) FIFO Method.

    ii) LIFO Method.

    iii) Simple Average Method.

    iv) Weighted Average Method.

    7.Examplesi) Plant and Machinery.

    ii) Furniture.

    iii) Bills Receivables.

    iv) Sundry Debtors.

    v) Patents and Trademarks.

    i) Aluminium and steel for manufacture of utensils.

    ii) Flour for bakery production.

    iii) Crude oil for refineries.

    iv) Cotton for cloth production

    8.PresentationAll Assets are shown in the balance sheet on the assets side as a non-current and current asset.Inventory is shown on the credit side of the trading account and under the head current assets in the balance sheet.

     

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