You may have noticed that sometimes the income statements of companies include a line named as “Change in inventory”. Why would it be there you might ask since “Inventory” is a balance sheet item and it’s an asset account? Why would it be on the income statement?

Matter of fact is that normally it isn’t there, however if there’s a change in inventory value, now there’s a reason to include a line item called “Change in inventory” onto your income statement. 

If you think about it, your inventory changes by two directions, decrease through sales, which on the income statement is part of cost of goods sold and is directly the expenses of specific goods sold, or decrease through stock count or some other form of discovery of actually not existing goods that are accounted in the books. That’s when your inventory usually decreases. It normally increases through purchases or cases during stock count for an example where you’ve discovered some items in your stock that aren’t accounted yet.

Now what happens however if you need to reflect the market price of an inventory item on your balance sheet. Normally your inventory is recognized in its cost. However, if the market price of the item goes lower than the initial cost it means your inventory item should be measured at its net realizable value and you should recognize the loss accordingly. You on one hand decrease the inventory account and on the other hand reflect the change on the “Change in inventory” account on the balance sheet.

Just as the name says, the line item usually reflects those changes in values, not changes in items, note that.