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Published on:

December 30, 2022

Swathi v prabhu

Difference between inventory and stock

Although many businesses use the term inventory and stock interchangeably, there is quite a lot of difference between the both.

Inventory is the raw material that is used for making the product, work-in-process goods, and finished goods. Inventory is included in the finished product ready to sell, work in progress that is not fully converted, and raw materials required to create the product.

However, stock refers to the finished product ready to be sold in the marketplace. Stock can also be raw material if the company is engaged in selling the raw materials to consumers.

Therefore, both stock and inventory have some important differences which need to be understood.

Before we go to the differences, let us understand the two terms.

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What is inventory?

Inventory includes finished products and all the assets that a business owns or uses to complete production. There are four main types of inventory

1. Raw materials refer to the part or components which are used to make the finished goods. Some examples of raw materials in case your company is into manufacturing motor fans, compressors, or thermostats, are:

a. Metal

b. Plastic

c. Fiber or other materials

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2. Work in progress:

a. Work in progress refers to stock still in the process of production. Some examples of work-in-progress that require time to dry are seal, bond, or ferment before they are ready to be packaged and sold.

b. WIP requires raw materials, labor, overhead, and other essentials which are needed to complete the production

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3. Maintenance, repair, and operating supplies (MRO)

These are some items essential in the process of production but do not form part of the final product. For example, if you’re tracking medical inventory for a company that manufactures glucose, production might be supported with these MRO supplies:-

a. Adhesives

b. Calibrators

c. Computers

d. Gloves

e. Packing materials

f. Safety glasses

g. Finished goods

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4. Finished goods are completed products that are packed and ready to be sold.

What is stock?

Stock refers to the finished product which is ready to be sold in the marketplace. Stock can also include raw materials if the company sells raw materials to consumers.

Stock is valued at cost of acquisition or market price whichever is less. As the stock gets sold, it is removed from the balance sheet and is considered revenue in the profit and loss statement.

Some examples of stock if you’re company is in the business of manufacturing or selling tires are:

1. Tire (finished product)

2. Carbon black (raw material- if the company also sells)

If a stock is piling up on the balance sheet, it is an indication of the fact that the finished product is not selling in the market. This is a worrisome situation for the sellers, in this scenario; they must either cut down on production or amp up their marketing skills to sell the product in the market.

Stock is nothing but a part of the inventory. Tracking stock data becomes imperative as it shows finished product sales. Some companies are known to track data on a day-to-day basis.

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Difference between stock vs inventory

Basis of comparison

Stock

Inventory

Consists of

· Raw material

· Work-in-progress

· Finished stock

· Finished product

· Raw material (if the company sells directly

Accounted

Cost of acquisition or market price whichever is less

Maintained on

Quarterly basis

Daily basis

Whichever is higher

Higher compared to stock

Lower compared to the inventory

Best case scenario

Optimal inventory

Zero stock

Example

For tire companies-

Rubber, carbon black, chemical, steel wire, tire, unfinished tire

For tire companies-

Tire, carbon black (if the company sells it directly

Many organizations use the term stock and inventory interchangeably which is incorrect. From an accounting perspective, these two have different meanings and a clear distinction has to be made. Inventory and stock distinction and inventory management are two important steps in the functioning of a business in a smooth and effective way

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FAQS

1. How should inventory vs. stock be accounted for?

Inventory is typically accounted for with the FIFO, LIFO, and weighted average methods, while the value of the stock is determined at the lower of acquisition cost or market price.

2. When should stock and inventory be replenished?

Stock and inventory replenishment are crucial parts of supply chain management. There are tools and calculations, such as the reorder point formula that can help you make solid inventory decisions.

3. What are inventory management tools?

Inventory management tools are used to complement a brand’s logistics operations. By implementing inventory technology and automation, online brands can expand their logistics network while tracking inventory in real-time. This provides brands full visibility into current inventory data without the need to be involved in the day-to-day operations.