You might ask yourself, should I care if my inventory is correct? Here are the top three reasons you should care.
1. If your actual items count on hand and cost or the inventory actual value is not correct, typically the net profit or loss on your Profit and Loss statement is not correct either. Sometimes that is good news but most often it is not good news.
2. If your inventory costing method is not correct because your software is not strong enough to allow you to manage your inventory or the actual costing method, then you may not know the actual profitability by customer or even by each sales invoice or by item. So how can you then tell who your most profitable customers are? It's not just how much stuff they buy, but what your overall profit margin on them is.
If (1 and 2) are not correct then you may be sitting with too much of one item costing you money to have stuff just sitting on the shelf. You may also be losing sales because you don't or can't get enough in time of another item and the customer may go somewhere else to buy because everyone wants their stuff now.
If all 3 reasons apply to your business you have inventory that is out of control. There really is no reason to lose sleep over inventory which brings me to the next set of helpful hints.
So how do you know if you have a problem? Let's review how easy it is to check without having your consultant or other advisors do this for you.
Check the inventory costing method stated on your company income tax return. Make sure that is the costing method that is established for your system default and is associated or defined on each stock inventory item you buy and sell. This can make a big difference in getting real information on the profitability of your items sold.
Print an inventory valuation report and compare the grand total inventory valuation dollars stated to the amount stated in your inventory general ledger account on your balance sheet as of the same point in time. Hint "These amounts should be the same" Review the inventory valuation report for items that have a negative quantity on hand or a negative value. This means someone is selling inventory that is not on the shelf and in a lot of systems since there is no quantity on hand, there may a zero cost basis on the item being sold.
See that was not so hard. If any of these apply to your business, you should have concerns about your inventory or how your employees are recording your inventory movement.
Watch your business no matter where you are. Manage everything with ease with our free online accounting service. Go to myob premier accounting .
1. If your actual items count on hand and cost or the inventory actual value is not correct, typically the net profit or loss on your Profit and Loss statement is not correct either. Sometimes that is good news but most often it is not good news.
2. If your inventory costing method is not correct because your software is not strong enough to allow you to manage your inventory or the actual costing method, then you may not know the actual profitability by customer or even by each sales invoice or by item. So how can you then tell who your most profitable customers are? It's not just how much stuff they buy, but what your overall profit margin on them is.
If (1 and 2) are not correct then you may be sitting with too much of one item costing you money to have stuff just sitting on the shelf. You may also be losing sales because you don't or can't get enough in time of another item and the customer may go somewhere else to buy because everyone wants their stuff now.
If all 3 reasons apply to your business you have inventory that is out of control. There really is no reason to lose sleep over inventory which brings me to the next set of helpful hints.
So how do you know if you have a problem? Let's review how easy it is to check without having your consultant or other advisors do this for you.
Check the inventory costing method stated on your company income tax return. Make sure that is the costing method that is established for your system default and is associated or defined on each stock inventory item you buy and sell. This can make a big difference in getting real information on the profitability of your items sold.
Print an inventory valuation report and compare the grand total inventory valuation dollars stated to the amount stated in your inventory general ledger account on your balance sheet as of the same point in time. Hint "These amounts should be the same" Review the inventory valuation report for items that have a negative quantity on hand or a negative value. This means someone is selling inventory that is not on the shelf and in a lot of systems since there is no quantity on hand, there may a zero cost basis on the item being sold.
See that was not so hard. If any of these apply to your business, you should have concerns about your inventory or how your employees are recording your inventory movement.
Watch your business no matter where you are. Manage everything with ease with our free online accounting service. Go to myob premier accounting .
About the Author:
Cheryl L. True is a Manila-based freelance writer who writes on a variety of topics.
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