PayTraq Blog

A Cloud-based Business Suite

Costing and Inventory Valuation

Sooner or later all new entrepreneurs ask themselves: Why is costing necessary?

Cost analysis is vital for businesses because entrepreneurs cannot optimize expenses unless they clearly understand what they consist of and which business performance indicators will be impacted by the changes and which will not.

Costing is needed to valuate inventory objectively, determine the wholesale and retail prices, calculate and control the return on sales (ROS) of each specific item.
Knowing the unit cost, you can easily determine the required/minimum acceptable markup for the selling price to reach the projected profits.

One of the key factors contributing to accurate financial reporting is the correct inventory valuation. Inventory is considered to be short-term assets, and as working capital it should be valuated based on its acquisition cost.

Why is the cost generally not equal to the latest purchase price?

Current stock may include goods purchased at different times at

...
Read more  
Posted in inventory, warehousing, accounting, business, PayTraq U

Periodic vs. Perpetual Inventory

Before getting ready to sell goods, every entrepreneur should decide for himself what system of inventory his business will be using. Companies may use either the perpetual system or the periodic system to account for inventory.
The choice of the system should be fixed in the company’s accounting policy. Workflow organization, content and frequency of various internal reports, selection of accounting and inventory management software - it all depends on this significant choice.

Periodic inventory system keeps the inventory balance at the same value that it was at the beginning of the accounting period. At the end of period, the inventory balance is adjusted to a physical count.

Under the periodic system, merchandise purchases are recorded in the purchases account, and the inventory account balance is updated only at the end of each accounting period. Thus cost of goods sold account does not exist during the accounting period. The

...
Read more  
Posted in business, accounting, warehousing, inventory