6. What are the different forms of inventory?

Inventory is an idle stock of physical goods that contain economic value, and are held in various forms by an
organization in its custody awaiting packing, processing, transformation, use or sale in a future point of time.

Different Forms of Inventory

Inventory of materials occurs at various stages and departments of an organization. A manufacturing
organization holds inventory of raw materials and consumables required for production. It also holds inventory
of semi-finished goods at various stages in the plant with various departments. Finished goods inventory is held
at plant, FG Stores, distribution centers etc. Further both raw materials and finished goods those that are in
transit at various locations also form a part of inventory depending upon who owns the inventory at the
particular juncture. Finished goods inventory is held by the organization at various stocking points or with
dealers and stockiest until it reaches the market and end customers.
Besides Raw materials and finished goods, organizations also hold inventories of spare parts to service the
products. Defective products, defective parts and scrap also forms a part of inventory as long as these items
are inventoried in the books of the company and have economic value.

Forms of Inventory by Function

Records pertaining to quantity and value of inventory in hand can be maintained according to any of the
following two systems:
(i) Periodic inventory system
In case of this system the quantity and vale of inventory is found out only at the end of accounting period
after having a physical verification of the units in hand. The system does not provide the information
regarding the quantity and the value of materials in hand on a continuous basis. The cost of materials
used is obtained by adding the total value of inventory purchased during the period to the value of
inventory at the end of the period.
(ii) Perpetual inventory system
It is also known as automatic inventory system.
According to the chartered institute of management accountants (CIMA), London, it is a system of
records maintained by the controlling department, which reflects the physical movement of stocks and
their current balance. The definition given by Wheldon is more exhaustive and explanatory. According to
him, it is a method of recording stores balances after every receipt and issue, to facilitate regular
checking and to obviate closing down for stock taking. The basic object of this system is to make
available details about the quantity and value of stock of each item at all times. The system thus provides
a rigid control over stock of materials as physical stock can regularly be verified with the stock records
kept in the stores and the cost office.