Inventory Reports: Definition and Example

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Pratibha Devasenapathy | Jun-24-2020

What are inventory reports?

Reports play an important role in any businesses, as they help manage day-to-day business operations efficiently. To track the profitability and growth of a business, these reports are extremely crucial as they give you a holistic view of your company. One such report is an inventory report.

In a business accounting context, the word inventory is used to describe the goods and materials that a business holds for the ultimate purpose of resale. Companies must choose a method to track inventory accurately. There are ways to account for inventory, periodic and perpetual. The perpetual inventory system requires accounting records to show the amount of inventory on hand at all times. It maintains a separate account in the subsidiary ledger for each good in stock, and the account is updated each time a quantity is added or taken out.

In the periodic inventory system, sales are recorded as they occur but the inventory is not updated. A physical inventory must be taken at the end of the year to determine the cost of goods.

Regardless of what inventory accounting system is used, it is good practice to perform a physical inventory at least once a year.

Inventory itself is not an income statement account. Inventory is an asset and its ending balance should be reported as a current asset on the balance sheet. However, the change in inventory is a component of in the calculation of cost of goods sold, which is reported on the income statement.

The way you manage your inventory will have a direct impact on the cash flow of your business. Inefficiency in managing inventory will put your business at a disadvantage. Inventories hold a huge amount of your working capital and stocking excess inventories implies that cash is tied up.

What are inventory reports used for?

Inventory reports help you run your business without interruption or breaking the bank. They can help you cut costs and reduce the risk of running out of stock. Inventory reporting may just seem like extra time or paperwork, but it can save you a ton of money and unnecessary effort.

Inventory management

One of the biggest uses of inventory reporting is managing inventory. You need to know what you have to ensure you don’t run out before customers’ orders are fulfilled. Ordering too late results in out-of-stock items and lost sales. Ordering too much too soon ties up your cash, increases your risk of damaged inventory, and requires more space for warehousing. Accurate inventory reporting tells you exactly when your stock levels reach the reorder point so you can restock.

Inventory tracking (within warehouses)

If you have a large amount of inventory and high sales volume, you need to track the locations of your inventory within the warehouse(s) you use for order fulfillment. Tracking SKUs by inventory storage location and keeping everything organized can make your job easier by preventing unnecessary movement, double-handling of products, and even lost inventory.

It can also help you:

  • Keep track of items ordered within a certain date range
  • If you order from more than one supplier
  • Identify affected products in the case of a recall
  • If you need to return damaged merchandise
  • If your inventory is perishable, or regularly changes in cost, you may need to track the location for the sake of FIFO (first in first out) or LIFO (last in first out) inventory rules.

Inventory categorization

Depending on your industry, there could be a number of ways to categorize your inventory. Looking at a mountain of cardboard boxes, it can be very unclear to see what’s what.

A list of items in each category that’s updated in real-time allows you to track inventory as it moves throughout the supply chain. For instance, manufacturers often need to track inventory as raw materials, goods in process, or inventory ready to sell. The inventory valuation of each category or step is a necessary part of tracking the cost of goods sold for tax purposes and inventory accounting.

Once it’s in your fulfilment centre, you’ll want to track each product as inventory received, stowed, picked for an order, packed in a box, and shipped to a customer.

Example of an inventory report

Inventory reports should be comprehensive and must detail out every single transaction with respect to stock summary, godown summary, movement analysis and stock ageing. The transactions entered in Tally.ERP 9 are immediately posted to the respective ledgers, books and registers. The inventory reports are generated based on these transactions. This facilitates instant reporting and faster decision making.

The appearance of reports can be changed according to your requirements. For example, you can generate comparison reports between different companies, periods of the financial year, and so on. Each report gives a thorough understanding about your inventory status, so you can take quick decisions on-the-go.

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