Question

In what ways are the inventory accounts of a retailing company different from those of a manufacturing company?

Short answer

Retailing companies account for only one class of inventory, i.e., finished products. In contrast, manufacturing companies take the record of inventories at every level of production.

Step-by-step solution

Inventory account for a retailing company

Retail companies mostly deal with “ready to sale”goods. It is also the goods for final consumption. Thus the inventories for the retailing companies constitute final goods that cannot be further processed.

Examples of inventories for retailing companies are FMCG goods, electronics goods, readymade garments, etc.

Inventory account for manufacturing company.

A manufacturing company uses inventory for production purposes and then makes them ready for sale.Thus inventories for manufacturing companies fall under three heads – raw materials, work in process, and finished product.

Examples of inventories for manufacturing companies are Leather, Jute, steel, etc.

Comparison of inventory accounts between retailing and manufacturing company

Inventory account for a retailing company is simple. Retailing companies need to record one class of inventories, i.e., finished goods. On the balance sheet, only finished goods as closing inventory would appear.

In comparison to that, the manufacturing company has a complex inventory accounting. They need to keep a record of inventories at every level of production. In order to get the estimated finished inventory value, unprocessed and partially processed inventory (WIP) is converted to the finished product value. On the balance sheet, all the categories of inventories are listed.