# ASC 330-10-05: Inventory — Overall — 05 Overview and Background

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/330/10/#05-overview-and-background)

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## ASC 330-10-05: 05 Overview and Background

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##### [330-10-05-1](https://asc.understandingaccounting.org/asc/330/10/#330-10-05-1)

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The [Inventory](https://asc.understandingaccounting.org/glossary/i/#inventory "The aggregate of those items of tangible personal property that have any of the following characteristics: Held for sale in the ordinary course of business In process of production for such sale To be currently consumed in the production of goods or services to be available for sale. The term inventory embraces goods awaiting sale (the merchandise of a trading concern and the finished goods of a manufacturer), goods in the course of production (work in process), and goods to be consumed directly or indirectly in production (raw materials and supplies). This definition of inventories excludes long-term assets subject to depreciation accounting, or goods which, when put into use, will be so classified. The fact that a depreciable asset is retired from regular use and held for sale does not indicate that the item should be classified as part of the inventory. Raw materials and supplies purchased for production may be used or consumed for the construction of long-term assets or other purposes not related to production, but the fact that inventory items representing a small portion of the total may not be absorbed ultimately in the production process does not require separate classification. By trade practice, operating materials and supplies of certain types of entities such as oil producers are usually treated as inventory.") Topic addresses the accounting principles and reporting practices applicable to inventory.

##### [330-10-05-2](https://asc.understandingaccounting.org/asc/330/10/#330-10-05-2)

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An inventory has financial significance because revenues may be obtained from its sale, or from the sale of the goods or services in the production of which it is used. Normally such revenues arise in a continuous repetitive process or cycle of operations in which goods are acquired, created, and sold, and further goods are acquired for additional sales.

##### [330-10-05-3](https://asc.understandingaccounting.org/asc/330/10/#330-10-05-3)

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Thus, the inventory at any given date is the balance of costs applicable to goods on hand remaining after the matching of absorbed costs with concurrent revenues. This balance is appropriately carried to future periods provided it does not exceed an amount properly chargeable against the revenues expected to be obtained from ultimate disposition of the goods carried forward. In practice, this balance is determined by the process of pricing the articles included in the inventory.