How To Get The Most Out Of Your Accounting Inventory System
Smart accounting isn’t just about keeping the books and tracking the funds that are coming in or going out. On the contrary, a key part of accounting is monitoring your business’s assets—and not just your fixed assets. While long-term assets—such as property or equipment—are undoubtedly important to factor into your accounting, it’s just as important to pay attention to short-term assets.
One of the essential short-term assets for a company to track through accounting is product inventory. Failing to account for changes in inventory can lead to unexpected stock shortages, backorders, and poor customer service, among other problems. And customer experience can be the major factor of your sales, depending on your industry. As was recently published in an article by Harvard Business Review, keeping your customers' expectation fulfilled is by far the most effective predictor of sales.
HBR evaluated the predictive power of three metrics—customer satisfaction (CSAT), the Net Promoter Score (NPS), and a new metric they developed, the Customer Effort Score (CES)—on customer loyalty. Not surprisingly, CSAT was a poor predictor. NPS proved better, and CES outperformed both in customer service interactions by far. So why making it harder for your customers to fulfill their needs?
With that said the remaining question is:
How can you devise a smart inventory accounting strategy to avoid these pitfalls?
Classifying Inventory Assets
Before we delve into strategies you can use to improve your inventory accounting procedures, let’s talk a bit about how assets are tracked through accounting paperwork in the first place. For financial reporting purposes, you would list inventory items under the assets portion of your company balance sheet. However, the accounting rules for these inventory assets differ from the rules you would follow for other types of tangible or intangible assets.
Inventory is unique. On the one hand, you would consider it a current asset, or an asset you will liquidate for cash in a year or less. Inventory assets, however, are neither the most liquid asset on your balance sheet nor the least liquid. Accounts receivable, for instance, is more liquid than inventory: it will be converted to cash sooner. Property or long-term investments, on the other hand, are significantly less liquid than inventory. For companies that manufacture and sell their own inventory, the matter is complicated further by the fact that inventory can be classified in three ways:
- raw materials inventory,
- work-in-process inventory, and
- finished goods inventory.
All these factors sometimes confuse businesses about how to classify inventory goods on a balance sheet. In some cases, inventory items can even be company liabilities, such as if a company has too much inventory to sell/store, or if consumer tastes changes. In these cases, inventory items might be classified as either short-term or long-term liabilities.
Using ZarMoney for Inventory Accounting
At ZarMoney, we are aware of how challenging it can be to account for an inventory in a way that seems logical, consistent, and in harmony with the rest of your accounting strategy. For these reasons, we include a feature for tracking inventory as part of our accounting software. Not only does this tool make it easier to know where your inventory is and what it’s doing, but it also helps you track changes in that can later be reported as part of your income statement or cash flow statement.
Features of our inventory tracking tool include:
- Cross-warehouse management: If you have multiple warehouses or shipping facilities, this feature can help you keep track of inventory counts and purchase histories specific to each location.
- Item Genie: Use this feature to track inventory on hand or see sales trends. The latter capability helps you avoid overstocks, which keeps inventory items from becoming long-term debt.
- Split transactions: If you only receive a partial purchase order, you can use this feature to split the transactions to reflect on your accounts payable accurately.
Other perks include easy conversions for units of measurement, easy inventory/purchase order comparisons, tracking for inventory transfers between warehouses, and more.
Try ZarMoney to Simplify Your Inventory Management and Accounting
Inventory accounting—from tracking items in stock to keeping an accurate record of what you’ve sold—can factor into every other aspect of your accounting, from cash flow insights to retained earnings calculations. Using ZarMoney, you can simplify the entire process.
What Other Types of Customization Does ZarMoney Offer For Inventory Accounting?
Every product or service your company sells can be identified as an item. ZarMoney’s powerful system lets you categorize all your items based on factors like type or brand. Set them up once with the ability to use custom fields. You can also set multiple price levels per item with ZarMoney. Then, create and use detailed inventory reports that can also be customized to meet any business need.
Use a barcode scanner to find your items quickly.
Get real-time inventory data
Stock level is updated automatically as you work. Always know what’s on-hand, what's reserved and what's coming to prevent stock shortages.
Offer different prices to a different type of customers, not every customer is a VIP customer.
Item Tracking and History
Use this versatile feature to efficiently track your inventory on hand, review sales trends and check available to promise, so you can stay current and make changes where necessary.
Customize product fields
Customize product fields by specific inventory item for tracking inventory purchases from vendors and selling inventory to customers. Customizing product fields helps you account for inventory and cost in detail and know when to stock inventory items and reorder.
Inventory costing methods
Use inventory costing methods that best match your business. ZarMoney includes FIFO inventory costing methods. Define your accounting method and accounting period to create every financial statement that you need, including the balance sheet, income statement, and cash flow statement. Match cost flows with revenue.
Organize customers with custom fields
Organize customers with custom fields. Define your own customer entry fields. Individually tag them and their transactions for easier tracking and better organizational control.
Customize sales and purchase lists
When you purchase and sell inventory, this ZarMoney feature will help you.
Track unique information with Custom Fields
With ZarMoney’s Custom Fields capability, you can track unique information about your customers and their transactions. Or, use it to get more detailed information about vendors and costs.
Track inventoried assets
Decide which inventoried assets to follow and how to track them with ZarMoney.
Other ZarMoney Inventory Accounting Features
ZarMoney also offers these features for inventory accounting:
- Convert units of measure (especially helpful if you buy and sell in different units)
- Stock available to promise
- Create pick lists
- Compare received inventory with purchase orders
- Compare sales orders to invoices
- Convert estimates to sales orders and to invoices that include item numbers and descriptions
Not Convinced About ZarMoney Yet?
We didn't think so. Not a problem. Check other products on market, and you can start with this back-to-back in-depth comparison of Quickbooks Intuit and ZarMoney, two major competitors in the field of cloud-based accounting software solutions.
Give It a Free Try
We know that a month of trying the software has more value than ten years reading about it. That's why we have prepared for your a free trial of ZarMoney accounting software, no strings attached, no credit card details required.