Managing Inventory

Merchandise Inventory

Merchandise inventories are the goods that are on hand for the production process or available for sale to final customers. There are two basic methods for determining inventory:

Ø Perpetual inventory method

Ø Periodic inventory method

With the perpetual inventory method, the cost of each item in the inventory is recorded when purchased. When an item is sold, its cost is deducted from the inventory. This results in a perpetual record of exactly what is in inventory. The perpetual inventory method is best suited for those businesses that have a relatively low number of sales each day and whose merchandise has a high unit value. For example, a car dealer might use the perpetual inventory method to keep track of inventory because it is easy to keep track of each item as it is purchased by the business and then resold.

This program uses the perpetual method and automatically tracks your inventory value. This program makes it easy for businesses such as department and grocery stores that have a large number of sales each day to track inventory value on a real-time basis. For businesses that manually maintain track inventory value, it wouldn’t be practical to adjust the cost of inventory each time an item is sold. Instead, these types of business use the periodic inventory method, which involves periodically taking a physical count of the merchandise on hand, usually once a year at the end of the accounting period.

Once the physical count is done, the exact quantity of merchandise on hand is known. The costs of all items on hand are then totalled to give a total cost of the inventory on hand at the end of the year.