Inventories can can simply be defined as asset items that a company holds for sale in the ordinary course of business, or items that will be used or consumed in the production of goods to be sold (IAS 2- Inventories). From this definition, we understand that inventories can come out as different categories in companies depending on their activities. A merchandising company usually purchases its merchandise in a form ready for sale and reports only the cost assigned to unsold units left on hand as “Merchandise Inventory” in its financial statements. A manufacturing company produces goods and usually sells them to merchandising firms. Although the products they produce may differ, manufacturers normally have three inventory accounts in their financial statements.