inventory profit

Inventory profit refers to the portion of a company's net income that arises from holding inventories, as opposed to trading with customers. This profit is realized when the value of inventory increases between the time it is purchased and the time it is sold. Accounting methods like Last-In, First-Out (LIFO) can prevent the recognition of inventory holding gains by matching the cost of goods sold with the most recent, higher purchase prices. Inventory itself is any item a business holds in stock, including raw materials, work-in-progress, and finished goods, appearing as an asset on the balance sheet. The cost of goods sold is calculated using inventory values, and methods like FIFO or LIFO are used to determine which costs are assigned.12