The payroll production, acquisition, and revenue cycles take into account all increases and decreases in inventory.
For merchants, distributors, and manufacturers, inventory is a vital current asset. A manufacturer's raw materials and work-in-progress that will eventually become finished goods are included in inventory together with things (items, merchandise) that are ready to be sold to customers. A company's inventory is valued and reported at cost on the balance sheet.
The cost of an inventory item is deducted from stock when it is sold, and the cost is then recorded as the cost of goods sold on the company's income statement. On the revenue statement, the cost of goods sold is the biggest expense. The balance, which represents the business's gross profit, is obtained by subtracting the cost of goods sold from sales.
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