Items Purchased: Are They Inventory?

Question: When I buy items from suppliers, isn’t that inventory?

Answer: In our industry, we order items that have been customized specifically for one customer. We rarely take possession of the items — only so we can deliver them to the customer ourselves or our customer will pick them up. These instances are not inventory. They are non-inventory items. When we pay the supplier, the transaction goes directly into cost of goods sold as an expense.

Inventory consists of items that have yet to be sold. We buy them, and record them as an asset on our balance sheet with the designed intention of selling them and getting them off our balance sheet.

Please email accounting questions you would like considered for the column to HGatter@AccountingSupportLLC.com with the subject line of "Ask the Accountant."