What is inventory accounting?
All that inventory accounting entails is valuing the inventories and monitoring any alterations. Three stages of product classification exist: raw goods, in-progress goods, and finished goods that are prepared for retail. The inventory accounting approach enables business owners to register the items as assets of their organization and assign values to the items in each of these three stages. The working capital of a company will be further strengthened by these appropriately valued inventories. Tally Accounting Software helps in managing all business inventory operations with a few clicks.
Types of inventory accounting
Inventory control must be done according to your company’s needs. Business management tools like Tally accounting software can assist you in managing your inventory levels in several ways, but it’s important to assess your needs beforehand and select the approach that will work best for your company. The top inventory accounting techniques to maintain optimal stock levels are listed below:
ABC test
The stock is separated into A, B, and C parts in this instance. High-value inventory with infrequent sales or low consumption makes up one part. You need to closely monitor stocks in this category. Category B stocks have moderate value and respectable sales volume. Category C comprises low-value inventory with high sales frequency that needs minimal inventory control.
Just in time (JIT)
In this instance, the business keeps the inventory at the level needed for production. With this approach, you can eliminate the expense of keeping surplus stock and ensure that you never have more inventory than needed for production. Here, even minor delays jeopardize production because placing the order for stock occurs when the old stock is almost zero.
Economic order quantity (EOQ)
The EOQ approach helps the business determine the minimum inventory level required. It also aids in determining the amount and timing of inventory orders. Businesses can make these decisions at any given moment.
Fast, slow, and non-moving (FSN)
In this case, we use movement to categorize the inventory. There are three categories for the inventories: non-moving, slow-moving, and fast-moving. We determine the order by moving across the categories.
Which inventory accounting reports are some of the most important ones?
You may effectively manage your inventory levels with the use of inventory valuation. You can simply and precisely keep track of your inventory with the help of automated business accounting software. These are a few of the most important reports for inventory accounting:
Flexible units of measure
Some of the most important aspects in any organization that require careful and accurate handling include managing real-time complexities such as “the requirement to buy in one unit and sell in another,” “quantifying stock items in more than one unit,” “measuring the unit of stock item with floating conversions,” etc.
Re-order level
By employing the reorder level strategy, you ensure that you never run out of stock and maintain real-time knowledge of required supplies. Additionally, you can choose the reorder level and minimum order level, while the system automatically generates a reorder status report indicating shortages and necessary quantities to order.
Multiple stock valuation
You can use several stock valuation techniques to value your closing stock with the aid of this inventory accounting approach. You can choose a different stock valuation approach for each item depending on your needs thanks to the flexible stock valuation method. Tally Accounting software supports the following stock valuation methods:
- Average Cost
- FIFO
- FIFO Perpetual
- Last Purchase Cost
- LIFO Annual
Manufacturing and expiry date management
For businesses that deal with items that have a limited lifespan or set shelf life, managing the manufacturing process and expiration dates is essential. By monitoring inventory according to its shelf life, entrepreneurs can avoid providing outdated products to customers and ruining their reputations by constantly monitoring their stock. You may manage batches with manufacture and expiry dates using TallyPrime’s batch summary report, and you can view all batch details, including the manufacturing date, the expiry date, the number of days till the expiration, and more.
What is the process for inventory accounting?
Typically, a company’s inventories represent its greatest current asset and provide a significant portion of its working capital. The profitability and financial health of the company are directly impacted by the way you handle the inventory. Inventory valuation is one of the main facets of stock management.
If an organization fails to measure inventories accurately, it may make bad business decisions, preventing expenses and revenues from matching up. Finding the cost of an entity’s inventory after a reporting period is part of inventory valuation. In simple terms, the goal is to increase the value of unsold stocks until preparing financial statements.
You need to value all of your inventory, including finished goods, work-in-progress, and raw materials, after the reporting period. Only when you use stock valuation to ascertain the cost of items will you be able to ascertain the profitability of your business?
We take into consideration the accounting standard’s valuation procedures and standards when valuing inventory.
Inventory accounting benefits
Proper inventory management and tracking will enable business owners to accurately portray the overall financial condition of their enterprise. Enhance your understanding of stock-in-hand, out-of-date merchandise, cost of goods sold (COGS), etc., leading to achieving the ideal levels of inventory. It is simple to determine which stock will give your company the highest profit margin based on the stage of inventory creation.
Here are a few more benefits of inventory accounting:
- To ascertain the unsold stock’s current value
- Calculate the cost of items sold.
- To ascertain the precise profitability
- To secure bank loan clearance, you require the values-based stock statement as crucial collateral.
- supports the making of company decisions and helps estimate future income.
Penieltech is the official partner of Tally Prime in UAE customizing all the business needs to the core. The expert developers are always ready for on-time solution delivery. Not only Tally customization but you also get CRM Software and ERP Software benefits from us. Contact us today for a free consultation on your business needs.
