We all know what inventory is and can picture piles of it in storerooms and warehouses. But"non-inventory items"? This rarely used term refers to a surprisingly largecategory of products (and, sometimes, services) that businesses may acquire and/or sell, butsince their quantities aren't worth knowing, they're not tracked. Non-inventoryitems can range from screws sitting by the thousands in bins at the back of a hardware storeto a very expensive, custom-made furniture piece that's one of a kind.
Here's a deeper look at non-inventory items, with multiple examples and an explanationof how businesses account for them.
What Is a Non-Inventory Item?
A non-inventory item is something that a company purchases for its own use or for resale butdoes not track in terms of quantity. Often, non-inventory items are low-value products forwhich keeping an accurate count wouldn't notably help the business. Basic examples arenuts and bolts at hardware stores, cardboard boxes and other packaging materials, and thetchotchkes retail stores often place near their cash registers to encourage impulse buying.This includes maintenance, repair andoperations (MRO) inventory as well.
Also considered non-inventory are custom-designed products purchased for a specific project— for example, a unique cabinet built by a kitchen remodeling company for a client whowants something that doesn't match any standard sizes. The company will order orconstruct the cabinet but not track it as inventory because it'sa one-time thing — not a product for which it needs to keep stock and trackquantities.
Key Takeaways
- The quantity of non-inventory items is not tracked by businesses.
- They're usually inexpensive items whose quantities are not worth tracking but mayalso be high-value one-of-a-kind products.
- Higher-value non-inventory items often are purchased and then sold immediately to aclient. Therefore, dropshipping is a common way businesses deal with high-valuenon-inventory items.
Non-Inventory Items Explained
The use of non-inventory items, also referred to as non-stock items, makes data entry easierfor a company since no inventory tracking is required. Such items are bought and sold, butquantities, locations and stages of the manufacturing process aren't monitored in theorganization's inventorymanagement system. While this may reduce administrative work, it also makes itharder to determine how many such items a company sells, or if any are still available forsale. A few common examples of non-inventory items include the items in a bill of materials (BOM), the items aconstruction company buys for a particular job, or office supplies a company buys for itsown use.
Non-Inventory vs. Inventory Item: What's the Difference?
To accurately reflect their financial position and the business's valuation, companiesneed to track inventory items at all the different stages of production — rawmaterials,works in process and finished goods. These are inventory items and are considered currentassets for accounting purposes.Inventory items are tracked and their quantities monitored. They may remain in stock for awhile before being sold.
Non-inventory items are not always tracked by software or manual asset management processes,and their quantities are not monitored closely, if at all. Non-inventory items are oftenpurchased for immediate sale or installation.
Examples of Non-Inventory Items
Non-inventory items can be bought or sold without having to check stock quantities for theiravailability. They also can include intangibles, such as services and digital-only elements.Here are a half-dozen types of non-inventory items to illustrate the concept.
Items specifically purchased for a certain job and then quickly sold or invoiced to thecustomer.
A client orders a custom-designed bathtub for a remodel. The company obtains that item andthen delivers it to the client. But this type of non-inventory item doesn't have to bea custom product. A company could also buy 30 desk chairs from a third-party supplier at theend of an office renovation project and then roll them out into its customer's newoffices upon receipt.
Items a company sells but doesn't ever possess.
Through a process called dropshipping, a business may sell items and arrange with themanufacturer to ship them directly to customers. Companies will do this to test markets fornew products; to deal with large, fragile or perishable items; and as a backup should theirstandard procedures encounter a problem.
Made-to-order items.
Examples of made-to-order non-inventory items include that custom kitchen cabinet mentionedabove, as well as products such as handmade jewelry. A business's website may feature30 different necklaces, but none get made until they're ordered. Services — suchas building and designing websites, cleaning or gardening — also would qualify asnon-inventory items that a company sells but doesn't purchase or track as inventory.
Supplies.
Office supplies and furniture qualify as non-inventory items. There's no need to trackexactly how many pens, paper and envelopes a business has in the supply closet. Whenquantities run low, you order more.
Tchotchkes.
A retail store may purchase a few boxes of lollipops, pens, energy drinks, dongles —you name it — to have at the counter for impulse buys.
Small and inexpensive necessities.
For this class of non-inventory item, the classic example is the hardware store that hashundreds of different types and sizes of screws and washers filling up its back aisles.Exactly how many 2-inch wood screws are in stock isn't a critical enough businessquestion for the retailer to spend the time and money to track.
Non-Inventory Items and Asset Management
Non-inventory items are never stocked and are not included as assets on a company'sbalance sheet, so there are no asset management considerations for them. However, sincemoney changes hands with these items, there still is a business need to account for them tovarious degrees. Non-inventory items are expensed at the time of purchase and the incomefrom their sale is recorded when they are sold.
Entering non-inventory items in business software allows a company to assign the responsiblecost center, correct income account, pertinent tax codes, selling price, item description,shipping information and manufacturing codes. This information comes in handy, particularlywith reordering items not for resale from the same vendor.
Non-Inventory Item Accounting With NetSuite
Just because your business does not track the quantity of non-inventory items doesn'tmean they aren't contributing value. Non-inventory items still require accountingattention. NetSuite InventoryManagement provides businesses with the tools necessary for that purpose. NetSuiteoffers three different options for monitoring non-inventory items, each with a differentintent and its own characteristics:
Non-inventory for sale:
This option is for non-inventory items, events or services that a business createsitself for sale to customers. You can input a price, associated cost centers, incomeaccount and other related information that can help with invoicing and accountingtransactions.
Non-inventory for resale:
This option handles non-inventory items the business purchases for sale to itscustomers, including those that are dropshipped directly from vendor to customer.
Non-inventory for purchase:
This is the way to go for purchases intended for internal use that are madefrequently and from the same vendor, such as office supplies. Setting up items inthis category makes it easier for the company to reorder supplies, for example,since all the needed product, pricing and supplier information is already in thesystem.
Businesses that deploy NetSuite Inventory Management can readily view inventory andnon-inventory items in the same suite and integrate both of them into their accountingworkflow.
Conclusion
Non-inventory items — things a company doesn't track in terms of the quantity onhand — can make money for a company, as well as cost the company money. Both tangibleproducts that a consumer can hold in their hands and intangible items such as services anddigital products can be classified as non-inventory items and monitored with advanced accountingsoftware. Certain types of businesses also buy products for a specific job and thendeliver them right away to the customer, thus maintaining no actual inventory of their own.But although they're not quantified or stocked as business assets, non-inventory itemsstill require accounting attention; a good inventory management system can help with thattask.
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Non-Inventory Items FAQs
What are examples of non-inventory items?
Non-inventory items are those that a company buys but doesn't track as inventory. Theyinclude items bought for a specific job and immediately sold to the customer, such as acustom-designed kitchen cabinet; made-to-order items like handmade jewelry; office suppliesfor internal use; or the pens, lollipops and energy drinks that a store may place by thecheckout counter to capture impulse buys.
What is an inventory item?
An inventory item is a product whose quantity is tracked and maintained as part of acompany's inventory management processes. These items make up a company'sinventory, which is considered an asset on the balance sheet.
What is a non-inventory item in NetSuite?
NetSuite allows for non-inventory items to be entered into inventory management software tohelp manage and track their performance. There are three such types of entries fornon-inventory items in NetSuite: for sale, for purchase and for resale.
What are the non-stock items?
Non-stock items are products not physically kept on hand for a company to sell. They couldinclude dropship items from a third-party vendor, service fees such as website design ordigital products.
