Small Business Guide to Inventory Accounting

Ready to expand your business into Asia? With over 30 years’ experience, Primasia provides company registration and a wide range of corporate services in Hong Kong, China, and Singapore. We are also your partner in Cloud Accounting, as Xero certified business advisors. Our specialists come to you to assist your company in getting up and running on the future of accounting– the cloud. Xero provides a deeper look at your business and can help you understand how successful your business is at a glance.  We provide the training your business needs to utilize this amazing software.

 

For example, keeping track of your inventory with Xero can tell you about sales cycles and optimal stock quantities. But why is it important to account for inventory? Inventory accounting can help your business both save money AND increase profits. Below we’ll cover what inventory is, what it isn’t, and several of the benefits of accounting for your inventory properly.

What is inventory?

Inventory comes in many shapes and sizes depending on the type of company you have, there are three main types of inventory: Merchandise you sell, Products your business installs, and Goods you create or manufacture.

What is NOT inventory?

Equipment and supplies needed to run your company are NOT inventory, instead these are usually counted as Assets or Expenses.

Why is it important to account for inventory properly?

First and foremost, when you understand how much inventory you have, how much it cost you, how much you’re selling it for, and when it’s selling- you can gain insights to help you make smarter business decisions. Working out your profit margins will help you figure out which products are earning you the most money and which products just aren’t worth the hassle. Keeping track of your inventory can help you decide which products to focus on, which enables you to grow your business.

 

Inventory Accounting can also help you understand seasonal sales cycles- what sells better in summer versus winter. You want to have enough stock to meet the needs of your customer bases, especially on your most popular items but not so much that your cash flow is tied up in items that your customers won’t want more of for several months.

 

Xero is beautiful accounting software for small businesses, allowing you to see your cashflow in real-time with online accounting, invoicing, payroll, billing & banking. As official Xero-certified business advisers, Primasia professionals can come to you to set up cloud accounting. Contact us today to learn more!

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