Editing Inventory (section)

===Financial accounting===
An organization's inventory can appear a mixed blessing, since it counts as an [[asset]] on the [[balance sheet]], but it also ties up money that could serve for other purposes and requires additional expense for its protection. Inventory may also cause significant tax expenses, depending on particular countries' laws regarding depreciation of inventory, as in [[Thor Power Tool Company v. Commissioner]].

Inventory appears as a [[current asset]] on an organization's balance sheet because the organization can, in principle, turn it into cash by selling it. Some organizations hold larger inventories than their operations require in order to inflate their apparent asset value and their perceived profitability.

In addition to the money tied up by acquiring inventory, inventory also brings associated costs for warehouse space, for utilities, and for [[insurance]] to cover staff to handle and protect it from fire and other disasters, obsolescence, shrinkage (theft and errors), and others. Such [[holding cost]]s can mount up: between a third and a half of its acquisition value per year. <!-- An organization that reduced its inventory by $1,000,000 would add that amount to its net income [huh???  Its net income would only increase by the income received minus the cost of the goods sold], an attractive prospect that helps to explain the popularity of programs like [[Just in time]] (JIT) inventory.   -->

Businesses that stock too little inventory cannot take advantage of large orders from customers if they cannot deliver. The conflicting objectives of cost control and customer service often put an organization's financial and operating managers against its [[sales]] and [[marketing]] departments. Salespeople, in particular, often receive sales-commission payments, so unavailable goods may reduce their potential personal income. This conflict can be minimised by reducing production time to being near or less than customers' expected delivery time. This effort, known as "[[Lean production]]" will significantly reduce [[working capital]] tied up in inventory and reduce manufacturing costs (See the [[Toyota Production System]]).