BPASC Ask The Accountant Inventory Management Course Part 1
All my courses are based on the inspiration of the Ruach (spirit) of YHWH. I do not nor will I ever sell Bible scriptures and verses. I sell education and training action items based on business accounting operations rooted in scripture and I can sell processes and procedures because we the people of YHWH are business owners.
The accounting process I am introducing to you today is for inventory management. Most business owners do not have a system for monitoring how the inventory comes in regardless of the inventory. Many business owners have what I call money leaks because duplicate or forgotten purchases require more income. Using what we have is important to inventory management and maximizing spending. Inventory management gives us the ability to understand and evaluate what is working in the business. We want to take steps that are beneficial to maintaining and growing the business. Inventory is an important piece when it comes to determining costs related to sales. Sadly, many business owners live under the illusion that they can bank (keep or withdraw) gross sales without regard to cost. Many business owners believe they do not have to think about the spending part because they just want to spend. I understanding spending is enjoyable but what we buy is essential to business ownership in the long run.
You can read this blog Looking at Taxable Income as a Business Owner or an Employee for more information regarding deductible business expenses and how we arrive at the taxable income number. Yes, we can understand taxable income and estimate taxes before tax season. Since we must buy what we need and still make sure the purchases are deductible we use inventory management. How do we manage inventory without stressing out about inventory? The accounting process for purchases and learning to use accounting software to manage your inventory. I know it is tempting to use spreadsheets and handwritten ledgers and you can do that, but you cannot expect other people, especially your accountant, to manage those documents for you. I manual processes are fine, but they also take up more time. I am also not saying using accounting software is perfect because it takes time to watch and manage and setup takes time but the end result of pulling all the information into one place for management, planning (projecting), and other reporting saves hours.
Clients will need to stop and take physical counts to make sure the system matches. So, we cannot just go, go, go without monitoring if our systems and process are working. My goal here is to get you started with a process so that you have a starting point and as we work together, I will show you how to check, sustain, and grow your processes over time.
Properly tracking inventory will help when later down the road the numbers do not match. If the business owner(s) use inventory for personal use that is okay if you take out the value of the inventory used but sadly many people want to use personal use as a deduction. Inventory numbers need to match because inventory that is unaccounted for indicates personal use or some sort of loss (including theft). Also, the internal revenue service uses your inventory numbers to see if sales and cost match. Sadly, there are people that underreport sales and over-report costs. I am unable to take part in poor inventory management as it takes extra work to hunt down the inventory and most people do not want to pay for that time. I like to encourage being proactive because it saves time and money all around. I do not like wasting my time when it is obvious the inventory is for personal use. I hope you understand personal use is approved but not deductible so we must back the cost for those items out of inventory. The goal is to do all things unto YHWH in a neat and orderly fashion.
I understand inventory management can be overwhelming but big businesses must manage and account for inventory management the small to medium size business owner also must account for their inventory. The IRS (Internal Revenue Service) requires a business to report beginning and ending numbers for the tracked inventory to report on taxes for the cost of goods sold and for the cost of services sold. There are different inventory valuation methods for keeping and tracking inventory and I could list them and explain but here is an area we can keep it simple. The inventory has a value normally based on your cost and the sales price. Inventory Is an asset traded for something, normally money. Understanding the value, you hold in your inventory is the potential for future earnings but also it reflects the actual cost for buying your products for future sales. The Inventory value is the cost and will support that the cost of goods sold, or the cost of services sold. Inventory also shows investment into the company.
During the purchase process most of the time we add the cost of goods sold at the wrong point in the accounting process. Most business owners think “I am small, I do not need to track that information.” All business owners with inventory need to track inventory from the day you start your business with the first item you buy or make (manufacturing) for resale. Inventory tracking will also help with sales groups of items. Such as someone that sells a certain shirt with a certain type of shoes. A manufacture would first need to buy, or manage parts created in-house individual products to build their final product for sale and an inventory accounting system to account for each piece. Such as a clothing manufacturer can account for all materials to make the product using the inventory system. Using an accounting inventory system to manage inventory helps to eliminate most manual calculations.
Tracking inventory helps us to be realistic about what it cost to sell a product. I know working in something we love is fulfilling but at what cost are we willing to keep something going that is not profitable? I believe with the right accounting process we can learn how to build a business that is functional and profitable. I know businesses can make it past the 5-year mark if they have hope that is support by the observance, testing, and reflection over real numbers and processes, aka actions. I would like to say just hoping and thinking positive work, but YHWH lays out steps to carry out goals within his word. YAHOSHUA points out that we need to cost the cost for all we do including walking with him spiritually, and he uses an example of a business owner. We must count the cost and find a way to operate within our means.
The course will lead you through the process (a workflow) for buying items, adding items in, or updating inventory, introduce you to accounting source documents for future reference and documentation. The system will show you a straightforward way to plan, purchase, update, pay bills related to inventory, and receive items.
The course currently consists of one video of about 24 minutes with a workflow chart and documentation (flowchart) to help you with starting your inventory management.
Setting up your inventory processes will lead you into the next steps for better invoicing (adding reimbursable cost to client invoices) so you can collect and properly account for cost in your pricing.
Y. Michelle Coard, B.A.S, A.A.S
Text: (919) 346-8385 /Phone: (919) 346-8385, please leave a message
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Client Contact Hours: 1:00 pm to 5:00 pm Tuesday through Thursday EDT.
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