Back to: Accounting 101
Welcome back!
Today, we’re going to talk about inventory and stock control. These are key concepts in accounting, especially for businesses that deal with physical products.
Inventory and Stock Control
Inventory refers to the goods or products that a business keeps on hand for sale. Stock control is the process of managing this inventory to ensure a business has enough products for its customers, without having excess stock.
Body:
What is Inventory?
Inventory includes all the goods a business has available for sale. For example, in a shop, it would be the items you sell, like shoes, clothes, or electronics.
Stock Control Methods:
FIFO (First In, First Out): The first items purchased are the first ones sold. This method is good for perishable goods.
LIFO (Last In, First Out): The most recently purchased items are sold first. This method is used for non-perishable goods.
Why Stock Control Matters:
Proper inventory control helps businesses avoid overstocking or running out of stock. Too much inventory ties up cash, while too little can lead to missed sales.
Inventory and stock control are critical components of a company’s operations, as they directly impact the availability of goods for sale and the level of customer satisfaction. Inventory refers to the goods or materials held by a business for sale, in production, or in the process of being manufactured. Effective inventory management involves balancing the need to maintain sufficient stock levels to meet customer demand with the need to minimise inventory costs, such as storage and handling expenses. For example, a retailer may hold inventory of goods worth ₦500,000, which must be carefully managed to ensure that stock levels are adequate to meet customer demand.
Stock control involves the processes and systems used to manage and regulate inventory levels. This includes tracking inventory movements, monitoring stock levels, and implementing reorder points to ensure that inventory levels are replenished in a timely manner. Effective stock control also involves minimising inventory losses due to theft, damage, or obsolescence. For instance, a company may implement a just-in-time (JIT) inventory system, which involves holding minimal inventory levels and replenishing stock only as needed, to reduce inventory costs and improve efficiency.
Inventory valuation is also a critical aspect of inventory and stock control. Inventory valuation involves assigning a monetary value to inventory items, which is typically based on the cost of acquiring or producing the inventory. The most common methods of inventory valuation are the first-in, first-out (FIFO) method, the last-in, first-out (LIFO) method, and the weighted average cost (WAC) method. For example, a company may value its inventory using the FIFO method, which assumes that the oldest inventory items are sold first, and record an inventory value of ₦375,000.
Conclusion:
Good stock control ensures that businesses run smoothly, meet customer demand, and avoid wasting money on unsold products.
Evaluation:
What is the difference between FIFO and LIFO in inventory management?
School Owner? Automate operations, improve learning outcomes and increase your income with Afrilearn SMSGet more class notes, videos, homework help, exam practice on Android [DOWNLOAD]
Get more class notes, videos, homework help, exam practice on iPhone [DOWNLOAD]