Question

You do NOT have to answer all the questions contained in this week's discussion topic. Choose a few that are of interest to you. You are also encouraged to add a few questions of your own to get feedback from your fellow students! Why do we take inventory? What are some of the challenges we face preparing for and conducting a full inventory? Does technology make taking inventory obsolete (bar codes, point-of-sale tracking, etc.) if not, why not? What does the accounting department do with reported differences? We often think of inventory shrinkage (count less on-hand than your records indicate you should have), Can you have more inventory than your records indicate? What would cause this?

Answer 1

(i)Inventory is products, parts, and materials to make products or parts. It's what you are selling. You can take inventory of office supplies or all the computers in your business. While that's a great idea, it's not what we're talking about here.

Businesses take inventory of items for sale for several reasons:

(a)For income tax reporting. Inventory is needed to calculate cost of goods sold on a business tax form. Inventory costs reduce business income and business taxes. This is the end-of-year inventory done by many retailers.

(b)To minimize loss and theft. Keeping track of inventory allows you to spot losses from loss and theft. If your inventory is disappearing and you can see that sales aren't going up, you know something's wrong.

(c)To get rid of obsolete and out of date inventory items. if items in your inventory aren't ever going to be sold, you need to get rid of them to make room for more saleable items.

(d)To evaluate movement of specific items. If a product in your inventory isn't moving out the door, maybe it's time to replace it. On the other hand, items that move fast might need to be ordered faster and in larger amounts. Of couse, this can change quickly, so you may need to do inventory more often than once a year.

(ii) No, Technology does not make taking inventory obsolete.

There are very important financial benefits that come with a good inventory tracking system. With this kind of control over inventory, it’s easier for you to know how many units of a product you have on have, how many units of the product you have ordered from the supplier, how much you paid for them, how many units you have already sold, and how much revenue they generated.

The right kind of inventory management technology will decrease your spending on inventory because electronic systems are unlikely to forget about inventory or lose records. As a result, you are unlikely to have untracked or obsolete inventory on your shelves.

(iii)No, We can't have more inventory than records. It should match accurately with our records. If it does not match it will lead to discrepancies. The value of inventory must be calculated accurately because it accounts for a substantial share of a business’ current assets and determines the value of profits or losses. Stock discrepancies may arise and although inventory adjustments are used to correct these differences to avoid overstating or understating the business’s income statement, the fact is that inventory reconciliation is not as simple as adjusting the book balance to match the physical count. There may be other reasons why there is a difference between the two numbers that cannot be corrected with such an adjustment and especially not as a long-term solution .