What is an inventory? Definition
The inventory consists of identifying and counting a company’s inventory in addition to drawing up a financial picture of its situation. It allows you to have a global visibility of the material that your company owns and to identify if there are any discrepancies between the theoretical quantities and the actual quantities.
Depending on the company, the inventory can be done according to different frequencies. Some prefer a more regular frequency while others are satisfied with once a year. Also, it is important to choose between a permanent or periodic inventory, depending on what suits your company’s needs best.
Why do an inventory?
It is mandatory!
For example, in Canada, businesses are required to take an annual inventory before the end of the fiscal year. This involves “held for sale. If you are a manufacturer, this includes raw materials as well as packaging material and supplies, work-in-progress (goods and services that you have not yet completed at the end of your fiscal period), and finished goods that you have on hand”. We advise you to find out about the regulations in your country.
This then allows the cost of goods sold to be calculated as well as the company’s net income to be able to file the tax return. A good inventory management is essential to reduce the complexity of the year-end return.
Counting the material
Doing an inventory on a regular basis can help you discover if there are any discrepancies between the theoretical quantity and the physical quantity. If there is a difference between the two quantities, questions should be asked to find out if there is a possibility of theft or loss.
This will also allow you to have some control over your equipment and avoid wasting money on unnecessary purchases. For example, you buy a computer for your new employee. If you had looked in your inventory management software you could have known that you had one free and thus avoid spending unnecessarily. An asset inventory management software is essential to ensure a good management of the company’s inventory.