Technical definition
Goods held for sale, in production or to be consumed in producing goods or services.
How it works
Inventory cost remains an asset until sale or consumption. At sale, the related cost becomes cost of goods sold. Cost-flow assumptions such as FIFO or weighted average allocate cost between sales and ending inventory.
Everyday example
Goods costing $600 sold for $900 create revenue 900 and cost of goods sold 600 in separate entries.
Common pitfall
Physical movement and accounting cost-flow assumption are not necessarily identical.