If you want to keep your account records clear and straight, you should record all the purchases made during a specified period. While recording inventory purchases, keep a few factors in mind: original purchase price, trade discount, purchase return and allowance, transportation cost, and ownership and transfer fee. Inventory is a significant aspect of almost any company or business. Buying and selling inventory is very important. You should track the primary activity, purchases, and sales of your inventory items with the unit’s inventory accounting system. In the language of business, the term inventory describes the products and materials held by a company for the ultimate purpose of resale.
Inventory entries
Inventory works as a kind of asset. An asset refers to any property a company owns, physical or non-physical, that helps add value to their business. Assets increase if you have debits and decrease if you have credits. Debits and credits considerably impact many accounts that record journal entries for inventory—such as accounts payable, finished goods inventory, raw material inventory, and merchandise inventory.
Manufacturing of a product
While manufacturing a product, you have to look at multiple inventory journal entries. You should review physical inventory levels at the end of the year to calculate the cost of the goods sold. It is advantageous to make a physical inventory list at least once yearly, write down the date the transaction was completed, and mention it in the left column of the given account’s balance sheet.
Establishment of inventory controls
The most critical step when managing inventory levels is safeguarding your inventory from theft and damage. Ensure that those workers who perform your financial management, manage inventory controls, and perform accounting entries know those inventoried items well. Make access limited for inventory supply and apply specific procedures for shipping and receiving products. Also, label inventory before storing to access the items quickly. Lock areas where you hold products when operations are closed. Being overly organized will help you access these items when needed and minimize losses to theft or carelessness. You must keep damaged products separately and keep a record of damaged products on the waste sheet.
Goods for resale
Implement purchasing and receiving procedures because you must add goods intended for resale to inventory through the receiving process. When receiving the goods, make sure that the packing or receiving slip matches the invoice and materials. Debit the inventory account to record the inventory purchases. If a person knows about COGS accounting, he should understand that COGS is how much it costs to produce goods or services. The cost of goods available for sale equals the starting value of inventory plus the cost of goods purchased. The cost of goods sold also equals the cost of goods available for sale, less the ending value of the merchandise.
Physical inventory
Perform physical inventory audits on an annual basis. While conducting a physical inventory audit, it is of great importance and very vital to create an accurate balance sheet. Physical inventory reserves directly impact units’ cost of goods sold, profit, and revenue. Also, it affects the information on the financial statements. There are two systems to account for inventory. These include the perpetual system and the periodic system. So, the company uses one of these two systems to make a journal entry for inventory purchases. In the journal entry of inventory purchase, the difference between the perpetual and periodic systems is just on the debit side. The amount of inventory purchased in the perpetual system is posted to the inventory account while it is assigned to the purchase account under the periodic inventory system instead.
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.
