Inventory vs. Stock – What is the Difference? Does it Matter?
How many times have you thought about whether the terms “inventory” and “stock” are interchangeable in the field of eCommerce fulfillment? The two are not interchangeable, even though they are frequently used interchangeably. Although stock is always inventory, inventory may not always be stock. Stock is a subset of the phrase ‘inventory,’ which is a relatively broad and more inclusive term. These terms apply to ready-to-sell items and the materials required to create them respectively. To ensure that your firm has enough supplies and items to fulfill customer requests without compromising order fulfillment, accurate inventory control is critical. However, if the two words are not utilized correctly in various areas of an organization, they might generate considerable misunderstanding. This article goes into greater detail about how to use the two phrases correctly in different situations and the basic difference between them. Let’s get started!
What is Inventory?
Inventory includes finished items as well as any assets that a company owns or uses to complete the production process. The manufactured product of a company, as well as the materials and equipment used to manufacture it, and the location where they are manufactured, are all included in inventory. Whatever goes into making the things sold by your company is considered inventory.
Because it represents a real-time assessment of a company’s revenue, product inventory is considered a physical asset. If an online business can’t move goods from its inventory, it’s having trouble making sales and needs to modify its operations or risk losing money. Certain companies must shift inventory considerably more swiftly than others due to the expiration date of specific products. In this case, having too much inventory will increase operating costs and lower revenue. In contrast, an online business with insufficient inventory risks missing out on prospective sales and, as a result, profitability.
Inventory can be divided into four main categories:
Raw materials: Parts or components used to create a finished product are known as raw materials. When your company uses the materials to make something that may be sold to the end consumer, it’s considered inventory. When a company sells raw material to another company, it is considered stock.
Work in Progress: Inventory that is still in production is known as work-in-progress. These inventory products are classified as current assets on the balance sheet.
Maintenance, Repair, and Operating Supplies: MRO materials are materials that help with manufacturing but aren’t included in the final product. These components are rarely used in the production of goods, yet they are counted as inventory in eCommerce accounting.
Finished Goods: Completed products that have been packed and are ready to sell are known as finished goods. It’s the overall number of products that can be fulfilled for clients to buy.
What is Stock?
The final product that the company sells is known as stock. All raw materials or commodities that are already in the warehouse and ready to be shipped to customers or serve their commercial objective are referred to as stock. The stock might also be primary raw materials if the company is selling those products in the market. Stock encompasses everything you offer to clients, including raw materials and finished products, individual components, and supplies.
Inventory vs. Stock: What’s the Difference?
Although there is a small difference between these two phrases, understanding them is critical for preventing confusion. Most eCommerce sellers consider the two terms to be interchangeable; nevertheless, when communicating with a financial reporting specialist, the two words must be distinguished. Inventory comprises marketable products as well as the commodities and resources used to make them, whereas stock focuses on products that are sold as part of the business’s everyday operations. Inventory influences the market price for the stock by taking into account all of the assets that a company employs to produce the commodities it sells. The quantity of revenue generated by a company is determined by its stock. Revenues increase as more stock is sold.
The most prevalent applications of inventory are in production and retail, whereas the most prevalent applications of stock are in the industrial and manufacturing domains.
Raw materials, work-in-progress objects, and final products are all included in inventory whereas the overall revenue of the business is determined by the stock sales value.
Inventory assists you in determining the sale pricing for your products. The overall revenue of the business is determined by the stock sales value.
On a quarterly or annual basis, inventory needs to be updated. The valuation of your stock might assist you to figure out how much money you’ll make in your business. Daily, stock levels must be updated repeatedly.
Inventory value is computed using weighted average techniques, FIFO, and LIFO. Stock value is determined by the current market valuation of the items.
The ingredients or raw materials for a biscuit factory would be flour, cocoa, oil, essence, and so on; the work-in-progress components would be biscuits in the oven, biscuits waiting to be refrigerated, biscuit batter being prepared, and so on; the products used in the preparatory work, such as butter paper and molds, and the completed products, such as biscuit packets, would all be part of the inventory; and the stock would be finished biscuit packets ready to be sold.
What Is the Difference Between Inventory and Stock Accounting?
Inventory items are normally counted once a year for accounting purposes, although stock counts are tracked constantly. This is primarily due to the fact that inventory is restocked as needed to ensure that the company is operating smoothly. Inventory accounting methods differ significantly from the methodologies used to assess stock value. The FIFO, LIFO, and weighted average approaches are used to evaluate inventory. The acronym FIFO stands for “first in, first out,” and it refers to the order in which products are added to your inventory and sold. The acronym LIFO stands for “last in, first out,” and it refers to the fact that the most recent things added to your inventory will be the first to be sold. Whereas the stock’s worth is defined by the purchase cost or the current value, whichever is lower.
Does the difference between Stock and Inventory Matter?
In the end, distinguishing between ‘stock’ and ‘inventory’ has little business significance. If you own an eCommerce business that only sells manufactured products to the customers, the ability to check and maintain inventory flow is the only thing that matters. What counts more than the distinction between the two words is a company’s ability to anticipate its stock and inventory demands and maintain and update them at every stage of its distribution chain.
To Conclude
We hope after reading this article, you have a detailed idea about stock and inventory. If you have any questions regarding stock and inventory, please let us know in the comments section below.
Further Reading
The Fundamental Difference Between Fulfillment Center & Warehouse Explained
A Detailed Guide on Expedited Shipping
Backorders vs. Out-of-Stock: Understand the Difference and Implications
E-commerce Fulfillment Explained: Definition, Process, and Valuable Resources
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