Inventory Record System, as the name suggests is one that is concerned with keeping a track of physical quantities and the complete monetary valuation inventories sold and in hand. On the other hand, the Net Realizable Value (NRV) is the estimated selling price of the inventory excluding the estimated cost of completion and anticipated costs required to make a sale. The term cost includes the cost of purchase, cost of conversion and all the other costs spent to bring the inventories in the present condition and location. It is regulated by the Principle of Conservative Accounting, according to which any expenses or losses from the transactions are recorded immediately, whereas any gains or profits are recognized when they actually become due for payment. The valuation of inventory is based on cost or net realisable value whichever is lower. Liquidity Position: Inventory comes under the category of net working capital, which helps in ascertaining the firm’s overall liquidity position.So, the authenticity of balance sheet highly depends on the accuracy of the value of inventory. Ascertainment of Financial Position: The value of inventory must be known, at the time of preparation of balance sheet, to determine the financial position of the business.raw materials, work in progress and finished stock, which appears under the head inventory in the financial statements. Statutory Compliance: As per Companies Act, 2013, valuation is must for each category of stock, i.e.For the determination of the gross profit, cost of goods sold has to be matched with the respective revenue of the financial period. Ascertainment of Income: Inventory valuation is important for ascertaining the real income that a business entity earns in a financial year.The reasons for the valuation of inventory, are discussed in the points given below: The determination of the value of inventory plays a crucial role in the preparation of financial statement, as it decides the authenticity of final accounts. In case of a concern involved in the construction business, projects that are under construction is termed as inventory. On the other hand, the trading entity includes products bought for the purpose of resale in their existing state. As a manufacturing entity may consist of inventories raw material, work-in-process and finished goods. The type of inventory depends on the nature of the business concern.

Stock inventory meaning