Accounting for inventory at the end of year?
For many accountants at the end of year they may visit the business to judge the inventory to finalise your annual accounts. They look at the warehouse, take a guess at the
quantities, pluck a number out of the air, pray to the gods, read the gizzards of a dead chicken, take away the number you first thought of and hey presto, there is your stock value. To be fair the accounts department would be struggling to get the price of the item from the pile of invoices, let alone which one’s haves have been sold. Programs such as Sage keep track of purchases, but not stock values. This leads to the situation that a significant number of Annual accounts on companies house is pure fantasy with guestimates on assets for inventory levels, let alone accruals for supplier invoices due for receipt at the beginning of the next financial year.
What type of software can account for inventory movements.
To be fair to calculate the value of each item coming into stores and then trying to track deliveries from that specific unit value (which paper clip in a pack of 20) is a mammoth task. This is made even more difficult by partial deliveries (in and out), spoilt goods, theft and all the other variables that happen to items whilst in storage. Add to that, the complexities of assembling a product build from a set of components, then stock levels go all over the shop. Most accounting software is not designed to deal with that sort of sophistication. Sage and Xero don’t really cut it and add on’s do help but are not an integrated solution. QuickBooks and Account Edge have a good intuitive half way house that measure movements on an average basis, but to do this with to a degree of accuracy you need to invest in more advanced ERP software such as Mamut, NetSuite or SAP.
Differences between accounting programs and ERP.
At this level the software is designed as an overarching business solution which is built from the ground up to deal with the whole workflow of an organisation. Accounting packages just deal with ins and outs of where the money is going. Enterprise level software connects all departments as a set of modules and each area get to see what they to do their job. This allows information to be entered once and is immediately available to other sections that need it. For example, when a purchase order is raised, warehouse knows to expect a delivery with anticipated timelines. This cuts down on double entry and increases the reliability of information in the system.
Next in the series we shall look at the complexity of dealing with inventory and how this sort of software can meet these challenges.
About the Author:
Malcolm Ford has worked for over 8 years in the ERP space providing advice on logistics and warehouse issues to businesses across the UK. Having an accounting background allows for an appreciation of the financial implications involved with inventory.