As a CPA doing audits on a small business, we would do our annual physical inventory counts and cost adjustments on the company’s inventory and reconcile it to the actual values. One of the hardest conversations I would have with a business owner was trying to explain how his profits for the year disappeared because inventory was overstated. It is scary how often this happened.
There are many reasons for inventory to get out of control and most of them lead back to entry level systems that do a poor job of tracking and costing. One of the largest frustrations with QuickBooks and other applications, and one most searched for answers with these systems, is “Inventory Management”. To understand why, here are a few of the issues:
-
Inventory activity is not transactionalized – Every touch point to an item must be saved as a transaction. We must be able to recreate history at any time.
-
Lack of proper costing – Generally Accepted Accounting Principles (GAAP) dictate the acceptable inventory valuation methods, such as FIFO or Weighted Average. Most entry level systems don’t follow these methods well making year end adjustments mandatory.
-
Lack of multi-location tracking – Even in one physical warehouse, you need to segregate inventory, for inspection or consignment. Now add multiple locations and you don’t know where anything is. This not only leads to misstatement but also overbuying (another sin in inventory management).
One of the easiest starting points is to use a cloud-based accounting application like Gravity Software® (Gravity) that lets you properly track and cost inventory where ever it is. Software alone won’t solve all the problems, but it will give you a platform on which you can build good business procedures, and it will help show you when problems start.
Gravity is a robust mid-market accounting software written on the Microsoft Power Platform (aka Dynamics 365 CRM). Its multi-location, GAAP compliant inventory makes it easy for growing companies to control inventory. It is written with an intuitive web interface that is easy to use, but can handle complex accounting issues. Want to learn more about Gravity Software? Schedule your online demo today! Just say GO!
Gravity Software
