How to Record on Hand Inventory for your Business
Recording on hand inventory is a crucial aspect of managing a business that deals with physical goods. Proper inventory management can help ensure that you have the necessary stock on hand to meet customer demand, prevent overstocking, and optimize your cash flow. In this article, we will discuss how to record on hand inventory for your business.
Step 1: Determine your inventory management system The first step in recording on hand inventory is to determine your inventory management system. You can choose between a periodic inventory system, where inventory counts are done at specific intervals, or a perpetual inventory system, where inventory counts are updated continuously in real-time. Whichever system you choose, make sure it fits your business needs.
Step 2: Set up your inventory management system Once you have chosen your inventory management system, it is time to set it up. For a periodic system, you will need to determine the frequency of inventory counts and establish a schedule. For a perpetual system, you will need to set up an inventory tracking software or system that can automatically update inventory levels as goods are received or sold.
Step 3: Record inventory purchases When you purchase inventory, you need to record the purchase in your accounting system. This includes recording the cost of the inventory, any associated fees, and the date of the purchase. Depending on the accounting method you use, you may also need to record the purchase as an expense or asset.
Step 4: Record inventory sales When you sell inventory, you need to record the sale in your accounting system. This includes recording the date of the sale, the price of the item sold, and any associated fees, such as shipping or handling fees. Depending on the accounting method you use, you may also need to record the sale as revenue or income.
Step 5: Track inventory levels Regularly tracking inventory levels is crucial for proper inventory management. This involves comparing the recorded inventory levels in your accounting system with the actual physical inventory on hand. If there are discrepancies, you will need to investigate and adjust the recorded inventory levels accordingly.
Step 6: Reorder inventory as needed Finally, you need to reorder inventory as needed to maintain adequate stock levels. Set up a system that alerts you when inventory levels reach a certain threshold, so you can reorder before you run out of stock.
Therefore, recording on hand inventory is an essential part of managing a business that deals with physical goods. By choosing an inventory management system, setting it up, recording inventory purchases and sales, tracking inventory levels, and reordering inventory as needed, you can ensure that you have the necessary stock on hand to meet customer demand, prevent overstocking, and optimize your cash flow.
Best Forms of Inventory Management
Inventory management is a crucial aspect of running a successful business that deals with physical goods. Proper inventory management ensures that you have the right amount of inventory on hand to meet customer demand, prevent overstocking, and optimize your cash flow. In this article, we will discuss some of the best forms of inventory management.
- ABC Analysis ABC analysis is a method of inventory management that categorizes inventory items into three categories: A, B, and C. Category A items are the most important and valuable items, and they require the most attention. Category B items are less important, and Category C items are the least important. By focusing on the most important items, businesses can optimize their inventory management efforts.
- Just-in-Time (JIT) Inventory Just-in-time inventory is a method of inventory management that involves receiving inventory only when it is needed. This minimizes the amount of inventory that needs to be stored and helps prevent overstocking. JIT inventory is a popular method in manufacturing and retail businesses, as it allows them to respond quickly to changes in customer demand.
- Dropshipping Dropshipping is a form of inventory management that involves outsourcing inventory management to a third-party supplier. When a customer places an order, the supplier ships the product directly to the customer. This eliminates the need for businesses to store inventory and reduces the risk of overstocking.
- Consignment Inventory Consignment inventory is a method of inventory management that involves a supplier providing inventory to a business, but the business only pays for the inventory when it is sold. This allows businesses to have inventory on hand without paying for it upfront. Consignment inventory is often used in the retail industry.
- RFID Technology RFID (Radio Frequency Identification) technology is a form of inventory management that uses radio waves to track inventory levels. RFID tags are attached to inventory items, and a scanner is used to read the tags and update inventory levels in real-time. RFID technology allows businesses to have accurate and up-to-date inventory levels at all times.
- Inventory Management Software Inventory management software is a tool that helps businesses track inventory levels, manage orders, and optimize their inventory management efforts. There are a variety of inventory management software options available, ranging from simple spreadsheets to complex systems that integrate with other business tools.
There are several forms of inventory management that can help businesses optimize their inventory levels and prevent overstocking. By using ABC analysis, JIT inventory, dropshipping, consignment inventory, RFID technology, and inventory management software, businesses can ensure that they have the right amount of inventory on hand to meet customer demand and maximize their profits.
What is a Perpetual Inventory System?
A perpetual inventory system is a method of inventory management that tracks inventory levels in real-time. This system continuously updates inventory levels as goods are received, sold, or transferred, providing businesses with accurate and up-to-date inventory information at all times. In this article, we will discuss what a perpetual inventory system is and how it works.
How Perpetual Inventory System Works
Perpetual inventory systems rely on inventory tracking software or systems that are integrated with point-of-sale systems or other business tools. Each time inventory is received, sold, or transferred, the inventory system automatically updates the inventory levels in real-time. This means that businesses can see their current inventory levels at any given moment and can quickly identify when inventory levels are running low or when there is excess inventory.
In a perpetual inventory system, each inventory item has a unique identifier or SKU (stock-keeping unit) that is used to track the item’s movement through the inventory system. When an item is received, it is assigned a SKU and entered into the inventory system. When the item is sold, the SKU is scanned at the point of sale, and the inventory system automatically deducts the item from the inventory levels.
Benefits of Perpetual Inventory System
There are several benefits to using a perpetual inventory system:
- Accurate and Up-to-Date Inventory Information: Since the inventory levels are continuously updated in real-time, businesses have access to accurate and up-to-date inventory information. This allows them to make informed decisions about when to reorder inventory, which items to discount or promote, and when to adjust their pricing strategy.
- Reduced Labor Costs: A perpetual inventory system reduces the need for manual inventory counts and tracking. This can save businesses time and money on labor costs.
- Improved Customer Satisfaction: With accurate inventory information, businesses can ensure that they have the right items in stock to meet customer demand. This can improve customer satisfaction and loyalty.
- Reduced Risk of Overstocking or Stockouts: By tracking inventory levels in real-time, businesses can quickly identify when inventory levels are running low or when there is excess inventory. This can help them avoid stockouts or overstocking, which can negatively impact their profits.
A perpetual inventory system is a method of inventory management that provides businesses with accurate and up-to-date inventory information in real-time. By continuously updating inventory levels as goods are received, sold, or transferred, businesses can make informed decisions about when to reorder inventory, which items to discount or promote, and when to adjust their pricing strategy. This system reduces labor costs, improves customer satisfaction, and reduces the risk of overstocking or stockouts.