The terms stock and inventory are used
interchangeably, but in actuality, the terms
have two separate meanings. Although the
difference is rather subtle, from an
accounting standpoint, it's very important to
your small business. In order to give an
accurate accounting of items the business
owns, learn the difference between the two
terms and use them correctly.
Inventory
Inventory includes a small business's finished products, as well as the raw
materials used to make the products, the machinery used to produce the
products and the building in which the products are made. In other words,
anything that goes into producing the items sold by your business is part of
its inventory.
Stock
Stock is the finished product that is sold by the business. In some cases,
stock is also raw materials, if the business also sells those products to its
customers. For example, a car dealership's stock includes cars, but also can
include tires, engine parts or other car accessories.
Related Reading: The Difference Between Variance & Capitalized Variance
in Inventory
Differences Between Inventory and Stock
While stock deals with products that are sold as part of the business's daily
operation, inventory includes sale products and the goods and materials
used to produce them. For example, the cars, car parts and accessories are
sold during normal business practices, but the machines that run diagnostic
tests on cars or the car lot itself are not. Inventory takes in account all of the
assets a business uses to produce the goods it sells and determines the
sale price for the stock. The stock determines the amount of revenue a
business generates. The more stock that is sold, the higher the revenues.
Considerations
For accounting purposes, counting inventory items is done generally once a
year, but for stock, the numbers are tracked daily. This is mostly because
inventory is replenished as needed to ensure there is an adequate stock for
the business to keep its doors open. It is usually not necessary to count the
number of tires a car dealership has daily, but it is very important to know
how many cars are left on the lot. Also, although the sale of assets can
create in infusion of cash into the business, this money is not considered
revenue. Only the sale of the stock itself is included in the revenue total.
Inventory and stock are not the
same thing.