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The third category of inventory is “raw materials,” consisting of goods that are to be used in producing products. Overall, inventory should include all costs that are both ordinary and necessary to put the goods in place and in condition for their resale. For many companies, what they have in inventory represents a major portion of assets and therefore makes up an important part of the balance sheet. It is therefore crucial for investors to understand how inventory is valued.
Inventories are kept track of by periodic and perpetual inventory systems. Both terms, periodic and perpetual, imply a time frame for determining the amount of ending inventory...
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