In the business world, merchandise inventory is crucial, so companies need to know what methods of inventory recording are.
As the name suggests, the elements included in the inventory record are the products that will be sold by the company, not all of the company’s assets.
Because there are a number of methods for recording inventory, you need to understand these methods so you can determine which method is right for your type of business.
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So, here is an explanation regarding the method of recording merchandise inventory that you need to know.
Definition of Merchandise Inventory
Merchandise inventory means all forms of products or merchandise obtained by traders and will be resold.
In general, merchandise inventories are only recorded by retail, distributor or wholesale business types.
In accounting, the definition of merchandise inventory is a current set that is easily converted into cash.
Merchandise inventory is also defined as a normal debit balance.
Benefits of Recording Merchandise Inventory
Before you know what inventory recording methods are, first know what are the benefits of inventory recording for companies.
Because inventory is a form of current asset, the company needs to record and regulate the entry and exit of these goods as material for financial reports .
So, what are the benefits of recording inventory?
Well, the first benefit is that it is easier for companies to check the amount of available stock. Therefore, don’t forget to also do stock taking to avoid any irregularities or misuse of goods which result in excess or shortage of stock.
In addition, another benefit of recording inventory is that it can minimize the risk of being late in sending goods or lacking stock or empty stock.
The next benefit is that it influences decision making, because companies can find out what types of goods with high levels of demand.
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Finally, recording inventory is also useful in forming the basis of a sales strategy, for example in using quantity discounts.
Management Strategy for Merchandise Inventory
Furthermore, you also need to know what are the management strategies for merchandise inventory, because inventory has a close relationship with the way companies implement sales strategies.
The following are a number of management strategies that are commonly used by companies in managing their inventory.
1. Lot Size Inventory
Lot size inventory is a management strategy that procures inventory by exceeding the predicted demand for goods at that time.
You can use this strategy if you rely on discounted shipping costs and discounted prices from suppliers of goods.
2. Fluctuation Stock
The second type of inventory management strategy is fluctuation stock.
This strategy is a strategy of supplying goods by buying goods which aims to deal with possible fluctuations in demand for goods from consumers.
3. Anticipation Stock
This one strategy basically has the same concept as fluctuating stocks.
However, anticipatory stocks are usually carried out by companies to deal with high consumer demand which has been predicted beforehand, by looking at the pattern of customer consumption each year.
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For example, this strategy is usually used when approaching Ramadhan or Eid al-Fitr.
4. Consignment Inventory
Consignment is other goods that are deposited elsewhere for the shop to sell, such as a business partner, agent or branch, where previously a consignment agreement must be made with the related party.
The goal is to get more profit by placing the product where there is high demand from consumers.
Goods Inventory Accounting Recording
You must record every activity in and out of goods on the company’s inventory application , because with these transactions you can find out what factors influence these transactions.
So, here are a number of transactions that have an effect on inventory.
1. Procurement or Purchase
Inventory of goods can be affected by procurement transactions and purchase of goods made by suppliers.
2. Purchase Discounts
The second factor that affects inventory is purchase discounts.
This purchase discount can be obtained from purchasing inventory through suppliers, if the buyer buys goods in large quantities.
3. Purchase Shipping Costs
Purchase shipping costs are postage transactions paid by the company when buying merchandise from suppliers to the goods storage warehouse.
4. Sale of Merchandise
The sale of merchandise is a transaction of selling merchandise to customers, whether it is the sale of goods in cash or on credit.
5. Purchase and Sales Returns
Other transactions that also affect merchandise inventory are purchase and sales returns.
Returns usually occur because there is damage during the delivery of goods. In addition, returns can also occur when the requested item does not match.
6. Taxes
Tax transactions also affect the amount of merchandise inventory. This applies to companies that are taxed.
So, the company will be taxed when buying or selling a product.
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Inventory Valuation Method
The following is an inventory valuation method based on the nature of the goods that you need to know before knowing the inventory recording method.
1. First In, First Out (FIFO)
The FIFO method is a method of valuation of goods where the inventory of goods that comes in first is the goods that go out first.
The FIFO method is usually used for goods that have high fluctuations, such as examples of basic commodities.
2. Last in, First Out (LIFO)
The LIFO method is a method of valuation of goods in which the inventory that is issued first is the inventory that enters last.
3. Metode Average
This method is an inventory valuation method that divides the availability of goods for sale by the amount of goods available.
So, this method is in the middle between LIFO and FIFO methods.
Methods of Recording Merchandise Inventory
In general, there are 2 methods of recording merchandise inventory that you can do with many applications
Examples of inventory recording methods are perpetual and periodic or physical methods.
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So, for those of you who still don’t know what the periodic method and perpetual method are, let’s see the full review below.
1. The Perpetual Method
The perpetual method is a method of recording inventory that records merchandise inventory when there are sales transactions.
So, if there is a sales transaction that affects changes in inventory, then the inventory account is also recorded at that time.
The advantage of this method is that the company no longer needs to do stock taking .
This is because the company already knows the amount of inventory at the time of the transaction.
Typically, the perpetual inventory recording method is applied to merchandise that has a high selling value.
Examples of trade goods with high selling value such as cars, gold, electronic goods, and so on.
2. Periodic or Physical Method
The second method of recording inventory is the periodic or physical method.
This method is different from the previous method, because inventory is not directly recorded when there is a transaction.
However, inventory is recorded at the end of the sales period. You do this by checking all inventory items directly.
This is why this method is also called the physical method.
But, you need to remember that every sales transaction still needs to be recorded, it’s just that inventory is not recorded directly.
Well, that’s a review of inventory recording methods in the business world. Hopefully this article is useful for you.