As it says here, financial statements contain many links to inventory And we want to know, how are they all connected? We can see that there's is going to be inventory in the balance sheet (that represents unsold inventory) But we might see references to inventory purchased Well that's also going to add to the item on the balance sheet And in the income statements, if we look at cost of goods sold. That represents inventory sold So how do all of them link together? Because they are connected Well we can use "BASE" analysis to connect them The "B" of BASE stands for beginning and we're going to start with the beginning inventory balance on the balance sheet And then gonna ask, what would I add or subtract to that? And that's the "A" and "S" of BASE Well we could add inventory purchased onto the inventory balance, that would make it go up I could subtract from that any inventory sold and that is COGS That's your cost of goods sold that you'll find on the income statement Put them altogether, so beginning add the inventory purchase, subtract the inventory sold will get you to your ending inventory balance So now I can see how inventory involves using the inventory purchased and cost of goods sold (or inventory sold) to get to your inventory balance at the end