Stock

Stock is an accounting term used to record the value of the inventory in store. “In contrast, inventory carries a lower price tag because it’s not for being sold”. Inventory represents the monetary value of the merchandise or products held in the store. It is a term used to identify tangible assets that have been collected, kept, and used. Compared with stock, inventory is valued at a cost less than any accumulated depreciation. The term, ‘cost’, means the original purchase price plus any cost of production or a combined selling price of primary products and input costs. Stock represents the monetary value of the merchandise or products held in store. 

What is a Stock ?

In accounting terms, stock can be understood as recording the value of a company’s inventory or items on sale. This is significant in its ability to calculate profit and loss for an organisation. Inventory has been known to carry a lower price tag because it’s not up for sale at any given time. A stock is an asset or a claim on an asset. It is a book entry or liability in the financial accounts of a company. The value of a stock depends upon the company’s net assets behind it. The net assets of a company represent the amount that has been invested in operations and is equal to the shareholders’ equity shown on the balance sheet. A company needs to show its current and historical levels for this purpose as these changes will affect future earnings and dividends before taxes, interest, depreciation, and amortisation.

Stock Value

The stock value is an element of the accounting equation. This element essentially maintains a balance between inventories and accounts receivable value. The stock balance comes into play when a business acquires or sells inventory on account. It can also happen when a company pays for inventory through cash, it may be paid for with other assets like cash or use its own inventory as collateral.

Primarily, stock is a record of the monetary value of an asset owned by a company. In a trust, the trustee is the owner of the trust assets and can freely transfer these assets to others. Therefore, stock is similar to an asset but it has no legal ownership and no control rights. Two entities (the company and its shareholders) hold the stock in respect to their claim on those assets. If all claims are satisfied, then there are no ‘claims’ outstanding and hence, there will be no stock value in the final account.

Examples of Stock

1) Raw Materials: Examples of stocks that a business might need to keep an eye on are raw materials or inventory. Stocks acquired in the process of manufacture are perhaps most important. Consider these stocks as results of good business planning: inventory, assets and cash flow. Actual stocks are valued at the current cost less than any accumulated depreciation.

2) Purchased Products: Products purchased from other companies may be valued at the purchase price plus any cost of production or a combined selling price of primary products and input costs.

3) Buildings and Equipment: Buildings, for instance, can be appraised at the ‘cost’ of their construction. This means that a building is worth the amount paid to build it. The cost is also ascertained by taking into account all costs that have been incurred for building it.

4) Investment: The investment of a business is reflected in its investments.

5) Assets: Assets are recorded in three ways in the balance sheet: actual, current and long term. Shareholders’ equity reflects the value of every asset of a company after deducting all liabilities as well as if any depreciation has been made on various assets over time.

Inventory, however, is a tangible asset that has already been created (for example, raw materials), and it’s used to develop products and supplies that are sold to customers to generate revenue.It also plays a part in determining net income, which is expressed as a percentage of sales and item cost (cost of goods sold).

Conclusion

Stock is an accounting term used to record the value of the inventory in stock. Stock represents the monetary value of the merchandise or products held in stock. On the other hand, inventory is a tangible asset that has already been created, and it’s used to develop products and supplies sold to customers to generate revenue. The amount of inventory reported on the balance sheet is used to determine how much interest income will be generated. It also plays a part in determining net income, which is expressed as a percentage of sales and item cost (cost of goods sold).