What expense category is Inventory?

Inventory refers to items a business holds for sale to customers in the ordinary course of business. For example, inventory can include goods purchased for resale or raw materials used to produce goods. Proper accounting for inventory is essential for businesses that sell products.

Inventory Expense Category

Inventory itself is not an expense. It is considered an asset until it is sold. When inventory is sold, its cost is transferred from an asset account to an expense account called Cost of Goods Sold (COGS).

Some Important Considerations While Classifying Inventory Expenses

• Valuation Method: The method used to value inventory (e.g., FIFO, LIFO) can impact the amount recognized as COGS.
• Inventory System: The inventory system used (e.g., periodic, perpetual) affects how and when COGS is calculated.
• Direct vs. Indirect Costs: Costs directly related to inventory production (e.g., raw materials, direct labor) are included in inventory, while indirect costs may or may not be included, depending on the accounting method and rules used.
• Uniform Capitalization Rules: Under the uniform capitalization rules, you may be required to include certain indirect costs in inventory.

Can Inventory be Classified as Cost of Goods Sold (COGS)?

Yes, inventory is classified as Cost of Goods Sold (COGS) when it is sold. COGS is an expense that represents the direct costs of producing or acquiring the goods that a company sells.

How Fyle Automates Expense Management

Fyle's expense management platform can assist businesses in managing expenses related to inventory. While Fyle doesn’t directly manage inventory, it helps track and categorize expenses related to the purchase of inventory, ensuring accurate record-keeping for these costs. This can simplify financial management and provide better visibility into expenses that impact inventory costing.