A inventory is a list or relationship of goods, products, resources or any object that belongs to a company, organization or person. Thanks to this list, the belongings and their value can be counted.
In this post you will know what is an inventory, its characteristics, types and how to make one. I will also share an example of an inventory in Excel. Stay until the end!
What is an inventory?
As I advanced in the first lines of this content, An inventory is a tool that allows you to keep track of the assets and resources of a company or person. In accounting and business, it takes on great importance, since an inventory in a company is considered an asset.
The The best-known concept of inventory is that of a document that lists the merchandise of a business to know sales, purchases and identify money leaks for theft, loss, expiration or damage of products. However, an inventory has more functions.
That is, depending on the type of inventory, you can record and account for: real estate, vehicles, computer equipment, accounts receivable, money that is invested in the bank, etc., so it is not only used to account for the merchandise of a company . Clarified this, we are going to review what an inventory is useful for.
What is an inventory for?
In general, in addition to offering the value of a company’s resources, this information is extremely important for making decisions or creating strategies. On the other hand, the more assets, products or resources you own, the more difficult it is to keep track of them, so their management becomes more complicated.
For example, a company that is dedicated to importing needs to know the amount of stock to calculate an estimate of sales and determine the time in which it should request more product.
Other cases that exemplify the usefulness of an inventory are knowing if it is essential to streamline the collection process to increase cash flow or if it is necessary to hire a technician to repair equipment that is stored because it is broken.
These examples are just some of the many cases where an inventory becomes an essential tool for companies. Now, the and operation of a company does not end with the creation of the inventory, there is what is known as management or .
Formulas and calculations are needed to determine the number of parts in stock and determine the value of the inventory. Additionally, it is usually a tool that facilitates the determination of product costs, although there are other methods such as . In addition, it helps prevent shortages or oversupply of resources or products in a company and for that reason, the creation and control of inventories is just as important.
Do not miss…
Article
Characteristics of an inventory
There are different types of inventory and methods for its control, but in general terms, its characteristics or essential elements are the following:
- Name of the inventoried object
- Identification code
- Value of the item being registered
- Cost
- Detailed description of what is accounted for
- Number of articles with the same characteristics
- Type of movement (entries or exits)
- State or status of the object
- Review period
Now let’s dive a little deeper into each feature.
1. Name of the inventoried object
It allows to easily identify the articles, goods or services that are being registered for their control and management. This element of inventories facilitates the work of sales and other activities for commercial purposes.
2. Identification code
SKU codes work similarly to the name, but are designed for better internal control in the production or supply chain. They are easier for machines, people and inventory control systems to read, and they reduce the risk of errors.
Do not miss it…
Article
3. Price of the item being registered
Mainly in merchandise control inventories, the price is one of the most important data. In a special sale or date of many sales such as the end of the year, it is essential to have the updated price to avoid loss of money or mistakes that lead to complaints for non-compliance with the price or misleading advertising as marked by the .
4. Cost
This information helps in the pricing of a business, but also allows evaluating purchases of furniture, machinery or equipment in companies. For example, to measure the success of the investment in a batch of desk chairs that ended up unusable in a short time or vice versa.
5. Detailed description of what is accounted for
Just like product descriptions in an online store or digital catalog, inventory descriptions provide additional information if there are items with similar names or codes.
7. Number of articles with the same characteristics
The total number of inventoried objects of the same item allows avoiding overselling of inventory, acquisition of merchandise, supplies or furniture that could expire or become obsolete and become losses for the company.
8. Type of movement (entries or exits)
Inputs (acquisitions or purchases) and outputs (sales, losses, thefts, etc.) help keep the total number of items up to date. In automated inventories, they save the work of manually updating different fields of information.
9. State or status of the object
The state or status provides special information about the company that operates the inventory and the type of merchandise or items listed. For perishable foods, the status can be the life time and for an operating furniture inventory, if the machine or object is in use or available to assign to a collaborator.
📌 Note: this data is one of the most customizable in an inventory. Use it to your advantage!
10. Update and review period
Nowadays, manual inventories are less and less common. An inventory system in a large company changes automatically in real time; even those carried out in Excel can be automated.
On the other hand, the frequency of review and collation of information become other customizable characteristics of the inventories. To determine the review frequency, a prediction (also known as a forecast) of the life of the inventory is made and control reviews are carried out within that period of time or it is carried out permanently, according to the needs of the company.
Inventory Types
- Initial inventory. Informs about the products, articles, materials, etc. and its value at the beginning of a period or accounting year. Matches the ending inventory of the previous period.
- Final inventory. It is calculated at the end of an accounting year to know the quantities or stocks of materials, products, articles, etc. and its value to identify the profits or losses of the period, as well as the budget for the following year.
- Inventory of anticipation or forecast. This is a type of auxiliary or additional inventory to others and its main function is to prevent increases in sales due to special dates or seasonality.
- Periodic inventory. Updating an inventory is important, a periodic inventory is updated or reviewed every certain time or period, whether weekly, monthly, quarterly, etc.
- Perpetual or permanent inventory. A perpetual inventory is automatically and constantly updated in the immediate moment of a transaction, whether it is input or output. It even updates product returns or losses.
- Annual inventory. This inventory is carried out every year, its function is to support the accounting inventory to verify the results. The review is manual and is one of the most laborious inventories.
- Cyclic or revolving inventory. Unlike the annual inventory, a cycle inventory is carried out at regular time intervals during the year. In this way, accounts are made and the end of the year is not expected to count merchandise or products.
- Raw material inventory. This type of inventory only accounts for the inputs or raw materials that are used for the production of a final product.
- Lot or lot size inventory. It is used to produce or acquire the exact amount of merchandise according to the demand of the business at a specific price for the entire lot to avoid the accumulation of products to the next period or inventory, thus minimizing costs.
- Consignment inventory. A consignment inventory does not belong to or form part of the assets of the person selling it. That is, whoever sells the products does not buy them, they are only in charge of marketing them for a sales commission.
- Factory supply inventory. Unlike the inventory of raw materials, this type of inventory records materials that are used for the manufacture of final products, but that due to their size or nature are difficult to quantify by pieces.
- Inventory of products in the manufacturing process or work in process. During manufacturing, especially in very large factories. It is used to know the rate of production and transformation from raw material to finished products.
- Finished goods inventory. Its name indicates it, it counts the products that have finished the manufacturing process and are ready for commercialization. It is used in factories to transfer these products to the warehouse and continue their journey through the supply chain.
- Inventory of merchendise. It is the most popular inventory, as it quantifies the products that are marketed by a company.
- Inventory in transit. Register the products that are on the way or being moved, either to the factory warehouse, distribution centers or with suppliers.
- Safety or reserve inventory. Its function is similar to that of a forecast inventory, as it seeks to avoid shortages of products in crisis or increases in market demand.
- Decoupling inventory. It is used in manufacturing processes, when it comes to different production processes.
- Inventory of obsolete, dead or lost stock. Accounts for products or goods that stopped working, expired, suffered damage or deterioration and therefore cannot be marketed or used.
- Available inventory. They record the quantity of products or goods that are available for use, commercialization or transfer to the warehouse.
- Online inventory. It is an inventory that is stored on the internet and that allows the updating and synchronization of various inventory systems.
- Quarantine inventory. Indicates the goods, merchandise or products that must be stored for a certain time before they can be marketed or used. It is common in industries such as food.
- MRO inventories. This type of inventory…
Facebook Comments
Disqus