All businesses specialize in doing something, which is also known as the “core operations”. If ABC Corp. sells products or items that have physical form as part of its normal daily operations, then ABC Corp. is said to require inventory; i.e. items that are bought with the original intent to be sold at a profit. If XYZ Corp. renders services as part of its normal daily operations, then XYZ Corp. does not require inventory.
Keep in mind that inventory consists of items bought with the original intent to be sold at a profit as part of the normal daily operations. For accounting purposes, this means that one company’s inventory could become another company’s property and equipment. For example, Toyota’s inventory consists of various vehicles and Samsung’s inventory consists of television sets. If Samsung buys three vehicles from Toyota, these vehicles will be labeled as “property and equipment” by Samsung. If Toyota buys three television sets from Samsung, these television sets will be labeled as “property and equipment” by Toyota.
