Inventories: inventory basics - companies have to maintain balance between too little inventory to meet customer demand and too much inventory. If this happens they will have dissatisfied customers and sales personnel. However, if too much inventory, the company will be burdened with unnecessary carrying costs. In the balance sheet it is often the most significant current asset. In income statement inventory is important in determining the results of operations. Classifying inventory - a merchandiser"s inventory consists of many different items. Only one inventory classification, merchandise inventory is needed to describe the many different items that make up inventory. A manufacturer"s inventory is also owned by the company but some goods may not yet be ready for sale. Therefore inventory is classified into 3 categories: finished goods; work in progress; and raw materials. By looking at changes in the levels of the three types of inventory, f/s users can get information about management"s plans for production.