Merchandise inventory accounting (goods inventory) – inventory management in accounting


What is the commodity inventory?

commodity stock Or merchandise inventory is all merchandise that a distributor, wholesaler or retailer acquires and intends to sell in a retail store. Wholesale markets and retailers are usually the only businesses with an inventory of merchandise at any given time. This is because stock of goods is basically just the goods that are intended to be resold at a higher price than the one obtained. The sale can be to consumers or commercial.

Differs commodity stock For manufacturing inventory, MRO (maintenance, repair, and operations) inventory, or raw material inventory. Most companies that deal with merchandise inventory will not handle other types of inventory at the same time.

The business model differs mostly in the way the books are kept. If you run a trading business, you will view inventory as an asset along with purchase costs such as freight compensation or addition to the cost of inventory.

One way it might be easier to think about it is to look at inventory in a cost of goods sold model. This comes in contrast to a manufacturing company that creates and sells the products they make.

What does it include commodity stock?

includes commodity stock All merchandise intended for resale, including those in transit from suppliers, in Company warehousing facilities, on displays at all retail locations, and those in consignment at other retail locations.

If you’re still not sure what to include, consider Walmart. Everything they own and intend to sell is considered a stock of goods that can be used in the assets of their company.

Goods available

Available goods refer to all goods purchased and available for sale at any given time. This does not include inventory being transferred. If goods are to be counted as on hand, they will need to be salable on demand. When calculating assets, goods on hand will likely be smaller than your total inventory of goods because it excludes goods that are being moved.

Goods on hand as an asset

When you report assets, inventory of goods is part of your company’s assets. Among your accounts, you will have two main types of assets. that’s it Assets and non-current assets.


Current assets include the assets you have that are easy to convert into cash. These include stock or commodity stock And other similar items that are traded during the fiscal year. Mostly this assets More attractive in the short term because it can provide immediate economic value. Goods inventory is one of the best ways to see and understand current or liquid assets.

Non-current assets

Non-current assets include all long-term corporate investments and intangible assets such as intellectual property or technology. It additionally includes the physical property and equipment your company owns.

accounting commodity stock

in Ledger For calculations, he will take commodity stock A place on your balance sheet and reflects the total amount paid for products not yet sold. Many accountants and executives would consider this a “stock of goods” to act as a holding account for items that will later be converted into credits rather than debits.

will be reflected commodity stock On your balance sheet, but it’s also reflected in your cost of goods sold or cost of goods sold.

on your income statement

While inventory of goods does not appear directly on the income statement, it is reported indirectly on that sheet through the cost of goods sold or cost of goods sold. The inventory of goods will appear as an asset on your balance, and the cost of the inventory of goods sold during an accounting cycle is reported on the income statement in which the sale is made. Any inventory of goods not sold in a particular accounting cycle is instead recorded as a current asset.

Merchandise inventory turnover

longer tracking Inventory turnover rate is essential to understanding how your company handles merchandise and whether you have a high or low inventory role. All businesses should look forward to maintaining a high turnover of merchandise. Without new inventory constantly coming in and going out (high turnover), your business won’t make any money.

Funds tied up in inventory that don’t sell or move through your warehouse will eventually become a liability. Sometimes this can’t be helped, but other times it’s important to make sure you’re doing all you can to keep the money flowing and your company in the green. A successful warehouse with a tuned supply chain will limit the amount of inventory that doesn’t sell quickly.

How to calculate commodity inventory

As long as you have access to timely and accurate data from your company’s revenue data, Commodity inventory account Not very difficult. You will need to know the starting inventory number, the amount of inventory purchased, and the cost of goods sold.

With these three numbers, you will be able to calculate the inventory of goods.

For example, take your starting inventory + purchased inventories – cost of goods sold = commodity inventory.

The resulting number or your merchandise inventory is the amount of money your business credited inventory at Accounting Cycle next. If this number is not updated carefully, your business accounts will not be able to accurately reflect how much money is stored in inventory.

commodity stockHow to be effective

As you know, or you may have discovered, points out commodity stock Almost always business oriented retail. While this is true, it is not uncommon in today’s day and age for merchandise inventory businesses to be set up online. Since we are a primarily warehouse-oriented company, we will focus on ways in which your online merchandise inventory activities can be more efficient.

Maximize Profits with First In First Out (FIFO)

When using the FIFO method, you will seek to sell the items acquired first before the items acquired later. For a business that sells perishable goods, this template will help ensure that high-quality shipments are maintained. This template is also effective if your business sells any seasonal products.

Additionally, when calculating the value of your remaining inventory, you’ll base it on the cost of goods sold from the product you acquired first. This remains in place even if the price of the same product goes up or down when more inventory is re-ordered.

Last-In, First-Out (LIFO)

This method may seem contradictory to the first method, but in general, the same mindset applies. You will seek to sell the inventory you acquired last, first. In this way, you will adjust your inventory asset account to reflect the price of the inventory you first acquired.

This model is one of the most complex and requires a great deal of manipulation of the income statement and inventory account. Most non-US companies will not be able to use this form due to the fact that it is very difficult on the end of the account.

This system works great for companies based in the United States that sell non-perishable raw materials such as gas, metal, or chemicals.

Just-In-Time (JIT) method

The Just-in-time method is used differently from the previous two methods, in that more inventory is purchased as needed rather than being kept in stock. When sales are up, do the same for new inventory orders to fulfill all sales. This method reduces the risk and overhead cost of storage and waste from unused inventory.

One such company that has embraced this philosophy and witnessed it by maximizing profits and minimizing waste is Toyota. The company calculates sales based on the number of cars sold and other market trends. This way, even in the worst years or a declining economy, it can still be profitable. This system made them the most profitable and valuable vehicle manufacturer for many years.

You will find that this method works best for retail traders who have mastered accurate forecasting and who want to reduce their holding costs.

ABC analysis

The ABC analysis approach helps you prioritize the sale of different products based on cost of goods sold. You will only need to put the stock of goods into three groups.

A – Low value and high value sales: This group is for merchandise that makes your business profitable but costs a significant amount to buy. You wouldn’t want to keep these items in stock for too long because of the financial stress it could put your income statement in.
B – Average Value, Average Sales: The letter “b” is right in the middle. These items are sold on a more predictable basis but are not the most sold.
C – low value and high sales: These goods are the items that you cannot keep on the shelf. They help boost your balance sheet but also do not provide a great source of income due to the low point of sale. You won’t need to market these items a lot or give them a lot of attention.

After creating these groups, you will need to set your priorities. Make Commodity inventory group (A) the most important. What can you do to sell more of these items to help boost your financials and put your company in the black?

c products are those that will be self-sufficient. Watch it, so you have a good amount of inventory, but don’t spend too much time worrying about it.

b products These are products that you may want to monitor. Be wary of letting them fall into the obsolete stock category. It’s best for your business to give them a nudge to sell more frequently or just to maintain consistent sales so you can anticipate inventory changes.

Use inventory management tools = more profits

There is another way in which you can become Commodity inventory accounting process more profitable to use Inventory management software. Some of the largest companies have managed E-Commerce of building its business on the back of a great inventory management system.

All warehouses and e-commerce companies can benefit from using an inventory management system.

These programs integrate easily with accounting tools andthe sales and other business you already use.

See also:

common questions

What is commodity inventory?

Inventory counting is a frequent process in stores, especially for merchants who have products in stock. This is an essential step in accounting, as it allows you to close the accounting year and create the mandatory annual accounts. Inventory stock cannot be improvised as it is a legal obligation. It must be carried out in accordance with the rules of the art in order to ensure reliability. This type of inventory can be physical or done using accounting software.

What are the legal obligations in terms of inventory?

Commodity inventory accounting is a mandatory process for any natural or legal person carrying out a commercial activity. It must be carried out at least once a year, precisely on the closing date of the accounting year. An exception is when a company is not able to prepare a reliable perpetual or periodic inventory. In this case, the annual inventory can be taken on a date different from the annual closing date of the financial year.

What is the commodity stock made of?

Commodity inventory consists of goods such as:
physical goods and products;
finished products
from raw materials;

Why on inventory accounting?

Taking inventories helps ensure a well-run business. In fact, inventory is an effective tool for:
prevent management errors;
Determine the value of products in stock;
Make a list of the goods in stock and those that are out of stock.

How does inventory count work?

To make an inventory, it is necessary to count the goods stored in warehouses and then compare them with the list of products purchased, sold or manufactured. In principle, the difference between inputs and outputs during the last inventory should correspond to what is available in the inventory. If necessary, the investigation may determine the origin of the administrative error or the disappearance of the goods.

When should inventory accounting be done?

Inventory should be taken regularly. It can take place over three different periods, depending on the nature of the business:
annually to account for the products in stock at the end of each accounting year;
permanent, when there is not much inventory and products can be taken at every entry and exit of inventory;
Rotation, when the inventory concerns only a part of the inventory and is carried out periodically.

What are the keys to quality in commodity inventory accounting?

Generally, stores are closed at inventory time so as not to disturb inventories. Three principles make it possible to conduct a quality inventory:

Separation of duties: Product counting should be done in teams of three, including a significant other, one who takes notes, and one who supervises.
Preparing inventory sheets:
You must specify the place of storage, the nature of the products, the supplier and the unit of count. Pre-numbered counting sheets are more convenient and easier to fill out. In addition, each paper must be validated and signed after verification before submitting it to the accounting department.

Inventory complete that is, all inventories must be accounted for without exception.


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