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5 Common Accounting Mistakes To Avoid With Your Inventory Management System

Managing inventory is essential in business. In retail, excellent inventory management determines a retailer’s ability to prosper, moving beyond survival to the next peak season. And it is a technology that makes a difference in inventory management.

What is retail management?

From a small business owner’s perspective, retail management ranges from buying, marketing, sales, channel management, and other business operations. More about retail management and its meaning and its need you can read in this study by MSG.

Retail management includes these back-office functions:

  • selecting, ordering, receiving, and controlling inventory
  • managing the supply chain
  • generating financial statements using accounting software and analyzing financial information including inventory turnover
  • tracking and collecting accounts receivable
  • managing cash flows
  • understanding tax law and tax returns
  • interacting with the certified public accountants who work for accounting firms.


What if business inventory management solutions didn’t exist?

A chaotic set of scenes, ending in bankruptcy and disaster, would emerge if businesses couldn’t use inventory management. It’s a plot-line for a new dystopian world movie where all business owners suffer the unimaginable consequences, and either violent or skilled, surreptitious looters prevail as the winners. 

Today, business inventory management does exist. But some owner still makes big mistakes by not using effective accounting software technology that’s available today for exceptional business inventory management. Let’s consider 5 of these mistakes next, should you be interested in learning more about the topic please refer to this guide by PayChex.

5 common accounting mistakes owners make with inventory

  1. Not tracking and controlling inventory properly, resulting in shrinkage through loss, damage, or theft 
  2. Not tracking demand by item and reordering the right quantity at the right time, resulting in too much or too little inventory
  3. Ordering too many products that customers don’t want, making inventory obsolete and requiring inventory write-off
  4. Not tracking and transferring inventory by item number at each location, resulting in inventory in the wrong location and not knowing whether or where it’s in stock at a different location and that a transfer could have been made through the right accounting and inventory management software
  5. Not ordering, measuring demand, or controlling inventory well, resulting in more stock than expected, then paying the price through higher than necessary storage and insurance costs 

Why it’s essential to have a Retail Inventory Management Solution?

To escape that dystopian retail world scenario, you need to understand inventory accounting methods and use a capable cloud accounting software platform.


What are the different inventory management methods in accounting?

Inventory and Cost of Goods Sold (COGS) accounting are known as management accounting. 

A business can choose a method reflecting its assumption of inventory flows and use it consistently for accounting purposes. The choices are FIFO (first-in-first-out), LIFO (last-in-first-out) or Average Cost. Avoid adopting the IT realm’s GIGO (garbage-in-garbage-out) that very weak accountants use. You can be better than that when you have the right accounting software system, set up the right items and categories, and strive for accuracy when entering the inventory data. 

To control inventory, accountants use both perpetual and periodic inventory methods. Perpetual inventory continuously tracks balances through the system as transactions occur.  Periodic inventory compares selected inventory items that are physically counted as part of a small sample on a rotating basis during the year, then adjusts the records to reflect actual physical inventory item counts (reconciled for any receipts and shipments not yet recorded in the system if there is a time lag).

Inventory counts based on samples throughout the year may focus on high dollar items and other items as well. Inventory items may be coded in the system like A, B, or C category, depending on their dollar value. A complete physical inventory taken once a year and observed by auditors from a certified public accounting firm is another essential type of periodic inventory. 

Retail inventory tracking is different from manufacturing inventory tracking. Manufacturing companies track raw materials, work in process (also called work in progress), and finished goods. Retailing companies track finished goods inventory (unless they also have a manufacturing arm of the company that manufactures the products that they sell). 

In addition to tracking inventory, management accounting includes determining the cost of goods sold, the amount of each item and category and recording Cost of Goods Sold (COGS) as the items in inventory are sold. 

Get inventory help from your cloud-based accounting software

ZarMoney is an ideal cloud-based accounting software platform that excels at inventory management. It offers more functionality than comparable small business accounting software.

With ZarMoney, you can:

  • track inventory and sales by item number
  • backorder out-of-stock inventory items and track order status
  • reorder inventory as sold to maintain desired inventory levels
  • track inventory by location and transfer from a location, as needed 
  • automatically record cost of goods sold by item number for items as they ship, and 
  • communicate with team members. 

ZarMoney can provide the inventory help that you need. Get started with ZarMoney.

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