Inventory accounting software available from QuickBooks
Whether you’re a builder, manufacturer or retailer, having a neatly managed inventory system is critical to a profitable venture. Inventory includes any materials or goods available for sale by a business. Inventory accounting is an important exercise to understand when managing a business in a correct and honest manner. Too often, organisations are crippled by the public’s loss of confidence when it comes to light their accounting for inventory has been compromised to yield greater profits. If the general ledger accounting is the backbone of a business’s finances – then the inventory accounting is its brain; affecting all aspects of a business’s profitability.
An inventory system can be used to determine the profitability of a business via its stock prices, and the prices at which that same stock is sold to customers. By changing the system, you can adjust the cost of the stock, which means that you’re affecting the theoretical profitability of a business in its upcoming months. Inventory accounting was once very difficult for a business owner to keep immediate tabs on. He or she would have to trust the honesty of service and product managers to maintain the numbers correctly. With the computerisation of accounting data, companies such as QuickBooks have taken all of the guess work out of accounting for inventory.
Contact QuickBooks to optimise your inventory accounting with one of our packages: QuickBooks SimpleStart, QuickBooks Pro and QuickBooks Premier.
Inventory accounting and systems
While the theory of taking inventory is straightforward: count items, value them at the cost at which you purchased them, and then price items for sale for consumers – the practical application can become complicated and time consuming.
The following are the four methods typically adopted by inventory accounting professionals to determine stock price and profitability:
- Specific identification: This method works best when a business knows the cost of each individual item that’s up for sale. Businesses that would use this method include car dealerships, jewellery stores and art galleries. However, this system becomes a problem when an inventory is too large and diverse, hence the evolution of alternative methods.
- Weighted average: This inventory accounting method calculates the ending inventory cost, by taking the cost of stock available for sale, and dividing it by the number of stock items from the initial inventory and purchases. This then provides a weighted cost per unit by which stock is then priced.
- FIFO: This is the “First In, First Out” method. In this method, the cost at which the first stock is purchased directly affects the price at which the stock is first sold.
- LIFO: This is the “Last In, First Out” method. In this method, the cost at which the last stock is purchased directly affects the price at which the stock is first sold.
Inventory accounting software that you can depend on
Contact QuickBooks for accounting software solutions that you can trust. Invest in one of our inventory system or accounting products: QuickBooks SimpleStart, QuickBooks Pro and QuickBooks Premier.