1. Inventory or stock refers to the goods and raw materials that a business had purchased and hold for the eventual resale to customers, production of semi or finished goods or own use. It is important for any business to understand and manage its inventory effectively to avoid goods shortages, over production or obsolescence that may eat into the profits of the business.
2. Inventory is recorded and categorised on a company’s balance sheet as an asset. According to generally accepted accounting standards, the monetary value of the inventory in the balance sheet are usually valued at cost or at market value, whichever is lower. The value of the inventory can also be written off to zero if the inventory are deemed to be obsolete or out of date.
3. In the profit and loss statement, the inventory are used to calculate the cost of goods sold. It is determined by adding the inventory on hand at the beginning of the period to the cost of purchasing and producing goods during the period and subtracting from this total the inventory on hand at the end of the period.
4. Since it is an important part of the business, managing your inventory well can help you to make sure you have the right products in the right quantity for sale, at the right time. For example, having an up-to-date inventory list will help you maintain your stock levels and give you a better understanding of what’s selling and what isn’t. This can help you to optimise your purchases and increase your sales. It can also prevent you from having to write off large amounts of obsolete stocks.
5. Without a doubt, inventory is often the largest item a business has in its current assets, which make it all the more crucial for it to be accurately monitored. Keeping a constant eyes and practicing good management of inventory not only helps increase business intelligence, it can save a company time and money while improving the customer experience.
6. Businesses that don’t manage its inventory effectively face several risks. After all, inventory is the lifeblood of a business, and it represents a huge investment. Conducted correctly, it can provide a business with an incredible array of advantages – improved customer satisfaction, cost and time savings, better organisation, etc. Overall, these benefits add up to greater business success.
7. If you need help to understand how inventory can work for your business, please come and talk to us. We at PL Biz Consulting Pte Ltd have the expertise and dedicated accountants to guide and assist you.