Inventory vs Supplies: What's the Difference in 2023?
In this article, we compare the key differences between inventory vs supplies and highlight their unique characteristics. Read on to learn more.
What Is Inventory?
Inventory refers to the goods and products a business holds with the intention of selling them to customers. The primary purpose of inventory is to generate revenue and profit for the business.
Example: TechFlow Electronics has 500 units of a smartphone model in stock, purchased at $300 each. They aim to sell them at $500 per unit to earn a potential revenue of $250,000.
Unique Characteristics of Inventory
Here are five key characteristics that define inventory:
Valuation: Inventories are valued at either cost or market value, whichever is lower.
Classification: They can be classified as raw materials, work-in-progress, or finished goods.
Turnover: Inventory turnover indicates how often a company sells and replaces its inventory in a given period.
Affects Gross Profit: The cost of goods sold (COGS) is derived from inventory, which impacts the gross profit margin.
Risk: Inventories can become obsolete, lose value, or get damaged, leading to financial losses.
What Are Supplies?
Supplies refer to items that facilitate business operations but aren't intended for sale. Their main purpose is to support day-to-day business tasks and operations.
Example: PrintPal Office Solutions purchases 1,000 ink cartridges at $10 each for their fleet of printers used internally. These cartridges aid in printing essential documents but aren't sold to customers.
Unique Characteristics of Supplies
Below are the key characteristics of supplies:
Expensing: Supplies are generally expensed when used rather than when purchased.
No Intention for Resale: They are not intended for resale, differentiating them from inventory.
Short-term Assets: Typically, they are consumed within a year and are classified as current assets.
Variety: Supplies can range from office products to maintenance tools, depending on the business type.
Non-Revenue Generating: Supplies don't directly contribute to revenue but are essential for operational efficiency.
Supplies vs Inventory: Are They the Same?
While both inventory and supplies are essential components in business operations, they serve distinct purposes. Let’s compare their differences:
Supplies: They facilitate daily business operations and aren't meant for resale.
Inventory: These are goods that businesses keep with the intention of selling to generate revenue.
Supplies: Costs are recorded as a direct expense upon use.
Inventory: Their valuation influences both the Cost of Goods Sold (COGS) and the overall gross profit margin.
Duration of Holding
Supplies: They are generally used up swiftly in routine operations.
Inventory: Depending on market demand, they can be stored for varying durations before sale.
Assessment of Value
Supplies: They have consistent value and typically don't need frequent adjustments.
Inventory: Their value can fluctuate, requiring periodic adjustments based on market conditions or obsolescence.
Location and Storage
Supplies: Stored within business premises for immediate accessibility.
Inventory: Often kept in specialized storage facilities or warehouses to ensure optimal conditions.
We hope this article has given you a better understanding of the difference between inventory vs supplies.