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Taking Inventory

Taking inventory means calculating the cost value of goods and materials that are held and available in stock by a business. The cost value of goods and materials are calculated by counting and weighing items available in a store.  It is an important accounting activity performed by a store keeper in the course of his/her business.  It gives an exact picture of how a store conducts their business.

Advantages involved in taking inventory are:

  • it helps to understand the reason for a store’s gross margin slides;
  • it helps to understand the position where a business started to fluctuate;
  • it helps to monitor and plan about inventory level and available cash relationship;
  • it helps to keep a store’s inventory turn according to industrial standards;
  • it helps to understand about the gross margin in a profit and loss statement; and
  • inventory will be listed in the balance sheet as a current asset and it is often considered as a store owner’s largest asset.

Generally, inventory is taken four times a year.  This is done on the last day of closing a business for quarter accounting.  However inventory for perishable goods are done monthly.  For example, in a meat store, inventory is taken monthly.

The general procedure involved in taking an inventory includes:

  • deciding the method of taking inventory;
  • deciding a date and time for taking inventory;
  • closing a store’s sales floor for taking inventory;
  • alerting customers using signs about a store closure when a store is closed for taking inventory;
  • planning and determining a person as the inventory supervisor;
  • creating inventory worksheets for different departments in a store;
  • keeping the backroom stock area clean and organized; and
  • dealing with unsaleable products by getting the maximum credit from vendors and throwing out other unsaleable products.

Steps involved in taking inventory are:

  • persons appointed to take inventory will be divided into a team of two members for each department of a store;
  • the inventory supervisor will allocate each team to a particular department with a worksheet;
  • one member from each team will count the goods kept in each department and the other person will record it on the worksheet;
  • each completed section will be marked with a piece of tape, a 3×5 card, or any other method to ensure that every thing is counted and counted only once;
  • an inventory supervisor will then take each team to their concerned department to ensure that everything is accounted;
  • the count in the inventory worksheets will be multiplied with the retail unit price by bookkeeper;
  • the average gross margin estimated for each section is subtracted from the retail price of total goods;
  • department managers will then assign margins to each worksheet;
  • the department worksheets are totaled together to obtain each department’s inventory; and
  • each department’s inventory is counted to get the total store’s inventory.

To ensure accuracy, an inventory supervisor will spot-check a team conducting inventory calculation in each department.  In case where an inaccuracy is found, the inventory supervisor will require the team to recount their department.

To ensure that the inventory is accurate, a store should have an accurate bookkeeping system and the store manager must be aware of potential cutoff problems.  Any failure to pay the invoice after counting a product can make an inventory taking inaccurate.

While taking inventory, a calculation must be done by using the same methods and it must be done accurately.  There are different methods available for taking inventories like, taking pictures, writing information on a photo’s backside or putting information on a personal computer and even by video taping. Because there are a large number of items in a store, inventory is taken or calculated at shelf price or retail price.

A perpetual inventory system is the most common inventory method adopted by large supermarkets and stores.  Under this system, a store’s computer will store a purchase list into inventory and a scanning system at checkout will subtract such items from the inventory list as they are sold.  This system helps to verify inventory accounts throughout the year.  The method of verifying inventory section by section throughout a year is called a cycle count.

Inside Taking Inventory