If the company's cost of goods sold for the year was $1,200,000 and saw a reduction in inventory of $80,000, we can assume that purchases were $1,120,000
We can see this as the reduction in inventory was due to sales so we would calculate:
$1,200,000 - $80,000 = $1,120,000
- The term "inventory" refers to both the raw materials used in production and the finished products that are offered for sale. Because the turnover of an organization's inventory is one of the main sources of revenue generation and, consequently, earnings for the company's shareholders, it is one of the most significant assets a company has. Finished goods, work-in-progress, and raw materials are the three different types of inventory. A company's balance sheet classifies it as a current asset.
- By producing or receiving goods as needed, businesses can reduce inventory costs by using inventory management.
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