Inventory is the goods a business holds for sale, or the materials it will turn into products, recorded as a current asset until sold.
Inventory, raw materials, work in progress, and finished goods held for sale, is a current asset on the balance sheet until it is sold, at which point its cost moves to cost of goods sold. How inventory is valued affects both profit and tax, and Canada generally requires the lower of cost and net realisable value.
Accurate inventory tracking underpins reliable financials: overstated inventory understates COGS and overstates profit and tax, while understated inventory does the reverse. Obsolete or unsellable inventory should be written down, which is a legitimate deduction, and physical counts reconcile the records to reality.
A store's $50,000 of unsold goods sits as inventory (a current asset). When sold, that cost becomes COGS. If $5,000 becomes obsolete, it is written down, reducing both the asset and taxable income.
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