Knowing the Accounting Inventory Management Basics

As a business owner, keeping tabs on your accounting inventory is an important responsibility that should always be your top priority as it drives a successful cost control of your operations. 

By effectively managing your inventory, you can easily reap significant financial benefits. Such benefits typically include tracking the costs of your inventory, monitoring profits, predicting inventory and forecasting changes in the prices of goods for sale.

To help you tick all of these in your list, here are a number of tips and tricks to keep in mind:

Setting Inventory Management Objectives 

As previously mentioned, there are a myriad of financial benefits that can come out from your strategic inventory management initiatives. Unfortunately, it would be difficult to focus on them all at once.

For starters, you can familiarize yourself with the types of inventory management and see which one fits the bill. 

1. Just-in-Time Management 

   Safety stock isn’t available for this inventory management; instead, it works on an ‘as-needed’ basis and operates with low inventory levels.
   
   
   

2. Materials Requirement Planning

   An inventory management mostly based on software programs. Accurate sales records helps in projecting of inventory needs, which they later on forward to the suppliers in a timely manner.
   
   
   

3. Economic Order Quantity

   Economic Order Quantity is the ideal order quantity a company purchases to minimize inventory expenses.
   
   
   

4. Days Sales of Inventory

   Indicates the average time in days that a company takes to turn its inventory, including goods that are a work in progress, into sales.
   
   
   

5. Vendor Inventory Management

   This type of inventory management involves the buyer providing the product information to the vendor and the latter maintains an agreed inventory of the material.
   
   

As such, the best you could do is to handpick the benefits that your business needs most and to focus on making these your objectives through the different types of inventory management. Satisfactory results come faster this way.

Read Next: How Inventory Management Affects Your Financial Statements

Finding a Reliable Inventory Management System 

As soon as your accounting inventory management goals are clear, the next thing to do is to look for a modern tool that will help speed up your inventory process. 

Ever considered integrating an inventory management tool with your cloud accounting program? Xero makes all of that possible. By using a business accounting software like Xero or QuickBooks with your chosen inventory management app, you can easily progress in inventory management while keeping a close eye on your business finances.

Related: Xero vs. Quickbooks: Which Suits Your Business Better? 

Seek Training for Your Staff 

Using an inventory management tool can make things easier for you and your employees, but there is always the adjustment phase to consider. 

Before taking a leap into using any kind of tool, make sure that you and your staff are well-trained. Seek assistance to keep things ironed out before complex and technical issues blow up and complicate your inventory process even further.

Accounting inventory management is at the core of your business financial initiatives. Make sure that your inventory is right on track and that together with it, your business finances are also doing well. Otherwise, you would find it difficult to keep your business on solid ground.

This post was first published 13 January 2016 and edited 06 August 2020.