For most businesses, maintaining an accurate month-to-month inventory value for Balance Sheet reporting is not useful information to report with precision. You are better served by keeping your operations clutter-free from worthless inventory unless you plan on selling your business.
Overview
Inventory is the total value of materials and goods held by a business to support production (raw materials, subassemblies, work in process) and support activities (repair, maintenance, consumables), or, for sale or in service to customers (merchandise, finished goods, spare parts).
Inventory is one of the few physical assets that a company generally does not intend to hold for a substantial period. Most physical assets, such as machinery, supplies, and equipment, are designed to be used by the company. While companies may decide to sell these assets at some point, this is not their intent at purchase.
If the inventory is the largest item in your business’s current assets category, it must be accurately counted and valued at the end of each accounting period to determine a company’s actual profit or loss. Any write-off of inventory is the formal recognition that a portion of a business’s inventory no longer has value. Your inventory write-off is best handled as a charge to the cost of goods sold or by offsetting the obsolete inventory allowance, depending on whether you want to represent the write-off as an expense or an asset offset.
Two considerations about inventory:
First, do you have materials, component parts, and work-in-progress (WIP) sitting in your facility that you intend to resell? If yes, it is advisable that you properly account for the value of this inventory since it is a current asset of the business.
Second, do you consider the inventory you are reporting on your Balance Sheet as salable at a price greater than the amount initially paid for the goods? If no, unload it to free up cash and space so you can better focus on the assets that do make you money.
If maintaining an accurate month-to-month value of your inventory for Balance Sheet reporting is important to you managing your business better than do it with precision.
If an accurate accounting of your inventory isn’t going to change how you manage your business to higher sales and profits, then you are better served by keeping your operations clutter-free from worthless inventory unless you plan on selling your business.