3JM Company Inc. . .
Inventories are merely stock of goods held for use in production, or for sale or resale.
To keep things simple we will use as the basis for this article finished goods, a product. This equation may be better understood using cans as an example. At the beginning of the year we have 10 cans. During the year we purchase 25 cans and sell 25 of them. We can see that there should be 10 cans on hand at year end.