In many ways when a product inventory resides on the shelf, it may be viewed as a liability rather than an asset. Many have said the inventory on the shelf are assets because they are under the ownership and control of the entity. If the entity wants to set their product ablaze, it is within their right to do so. What happens to the assets if an entity decides to set their products ablaze? Note: This is a hypothetical situation.
If an entity were to set its produce ablaze, it would change the liabilities into straight debt against revenue without the ability to repay. The ability to repay the liability, in the imagined scenario, is contingent upon the inventory’s sale which cannot be achieved if the product is lost. The placement against revenue is appropriate, in my view, because the actual loss is potential revenue, not the use of forty-five hammers, twenty cement mixers and four riding lawn mowers.
The purpose of products and services, in retail, are liabilities being sold in exchange for assets. It is a different perspective on the accounting: the items waiting on the shelf to be sold are liabilities, not assets. The items on the shelf are liabilities because they have already been manufactured and already expenses on the books. The issue, at this point, is whether or not the product may be sold to recoup the encumbered capital.
The above is a really important point, because with closer reading and interpretation it should be understood as everything is a liability until its purpose is realized. This affects the whole chain, from start to finish. That may be misconstrued as “don’t take risks,” which is not the point. It is just to say: until a hammer is actually pounding nails, it is just a product of steel and wood manufacture.
There is an idea that the items on the shelf are assets because they can be used at any time for other purposes at the sole discretion of the business owner. In those scenarios, the liability is immediately changed to an asset in the process of marking the inventory as no longer available due to its use. It is similar to taking a mop out of inventory to use to clean up a spill on the floor. It was a liability on the shelf, but becomes an asset to the business the moment it is used to clean up a spill.
These are just observations and should be taken with a grain of salt. Additionally, this is not from any educated point of view. These are simply the philosophical meanderings and questions as to “why?” It seems as though anyone with a basic accounting education could refute these points.