Manual Inventory Tracking
If you have a small-time inventory business and are literally storing your inventory in your garage and are not utilizing a complex inventory software to track your stock status and calculate the Cost of Goods Sold, then here are some tips to post manual entries into your bookkeeping records to help assist in your inventory financial tracking.
- When you purchase and finally receive new inventory, maintain a spreadsheet of each item’s original purchase price. For example: If you purchase 100 of Item “A” and the total cost here was $345, the each item’s purchase price was $3.45.
- When you purchase new inventory, don’t include costs you had to pay for acquiring manufacturing components needed to make your products (such as any tooling or molds costs) into your individual per item costs. Instead, manufacturing components should probably be capitalized onto your balance sheet (as separate items) and not mixed in with your inventory assets.
- Try to, (at least each month), calculate the Cost of Goods Sold and new stock status and update your bookkeeping records. For example: Suppose now, that you only have 90 of Item “A” left in stock (as 10 of these items sold to customers), therefore your Cost of Goods Sold for Item “A” was $34.50 (10 x $3.45). Therefore your entry into your bookkeeping records will be: Debit to Cost of Goods sold for $34.50 and a Credit to your Inventory Asset account for $34.50. Thus your new stock status value for Item “A” is $310.50 ($345 minus $34.50).
- Let’s say that you decided to purchase 50 more of Item “A” from your supplier and this time you paid $2.50 for each item (instead of the $3.45 you paid previously). Therefore, for future Cost of Goods Sold calculations, you will have to decide if you want to use one of the following methods:
- LIFO: Last In First Out ($2.50 in our scenario here)
- FIFO: First In First Out ($3.45 in our scenario here).
- Average Cost: (To calculate: ((50 x $2.50) + (90 x $3.45)) divided by 140 items = $3.11.
Overall, it is always best to keep up with your inventory valuation and Costs of Goods Sold as often as you can, then you can determine important things such as:
- Profitability per Item: Are you actually earning more than what you are spending overall?
- Sales per Item: Which items are actually catching customers’ attention?
- Stock Status per Item: Are some items sitting on your shelves or in your garage too long? Did you invest too much into items that are not selling?
Note: AccuraBooks is a bookkeeping firm only, so please consult with your C.P.A. for verification and clarification about the contents of this article.