What is the Accounting of Inventory Management?

Inventory Management is an internal business process that companies use to ensure proper inventory control. This process is often part of the accounting department and includes a heavy use of the company's automated accounting software package. Reconciliation is a large part of the inventory management, because the accountants will have to review the information stored in the computer software program and compare them to the actual inventory in the company's warehouse. There are several different options for companies that need to introduce an accounting process for management for inventory. The perpetual system updates the inventory accounts every time the Company is buying, selling or modifying stock items in the Accounting program. This system also ensures that the company has an accurate inventory record in terms of the total dollars. Less reconciliation is required during the permanent inventory process, as the system maintains a constant inventory overview. However, the system is less accurate and requires a complete inventory of every fewto weeks or months. Accountants will have to create an inventory record from their software package and compare it to a real inventory. The main modifications are often necessary to correct the main differences between the two inventory data.

Another main part of the inventory management is to select a stock valuation system. Common methods of valuation of inventory inventory inventory include FIFO (first V, first out), lifo (last in the first, first) and weighted average. Many companies use the FIFO method because it is simple and leads to the first inventory sold, which reduces the chance of depreciation for outdoors. The LIFO inventory valuation sells a newer inventory first; This often results in higher costs of goods sold and lower net income. LIFO will therefore lead to lower tax liability for the company at the end of the year.

Internal checks are another part of the inventory management. These controls limit these controlsNumber of employees who have access to information about inventory or complete modifications or other inventory accounting activities. For example, the controls will limit access to the system, create audit trails so that managers can see which employee worked on inventory projects, locked the physical inventory in secure locations, and provided regular audits to the company's inventory process. Other checks may be necessary depending on the operational procedures and industry of the company, such as production or retail.