Inventories
Inventories are most often associated with manufacturing and retail operations, rather than with governments or governmental entities. Many, if not most governments, however, do maintain inventories, because the definition of what is considered inventory is somewhat broader in the governmental environment. Most inventory amounts reported by governments, however, are not significant in relation to their overall financial statements and this section is not trying to overstate the importance of this item to these financial statements. However, it is useful to understand what the inventory caption means because although not generally large, it is seen frequently.
Traditionally, inventory is considered merchandise or goods that are being offered for sale. Governments, and particularly those with business-type activities, often have items that they sell. A governmental college bookstore would have an inventory of books that it sells. A governmental healthcare organization may have an inventory of medications and other medical supplies that are charged or “sold” to patients as they are being used. In the government accounting environment the financial statement caption called “inventory” often consists of various materials and supplies that are used by the government itself. This may consist of the usual variety of office and general supplies. A government’s motor pool may keep a supply of com monly used automobile and truck parts. Other governmental entities, such as transit authorities, may have a large inventory of spare parts for buses, trains, and so forth.
The accounting for inventories can be fairly complicated and the details are beyond the scope of this book. However, a basic understanding of inventory accounting will go a long way in understanding inventories reported on the statement of net assets of a government.
Taken From : Governmental Accounting Made Easy