What is inventory accounting and how to maintain inventory accounts? Author: Ckrishwa
Inventory account is the part and parcel of the accounting and bookkeeping system. While the financial accounts like trial balance is concerned with the financial activity of the business or company, inventory accounts concerned with the quantitative aspects or physical goods or inventory aspects. In other words inventory accounts mainly concerned with the accounting and bookkeeping system of maintaining the physical goods or products or inventory of the business or company meant for purchases and sales.
Inventory accounts includes the opening stocks or products, stocks or products or inventories purchased for trading purpose during the financial year, stocks or products or inventories sold on trading basis during the financial year and the balance stocks or products or inventories available at the end of the financial year.
Stocks or products purchased for trading purpose may include both on cash basis and also on credit basis. Similarly stocks or inventories sold includes both on credit basis and cash basis.
Inventory accounts also include the goods or stocks or products transferred to branch offices and stocks transferred from branch offices to head office.
Inventory accounts are normally prepared on monthly basis and also on quarterly and annual basis. It is the mandatory requirement of auditors for certifying the inventory accounts of the business or company.
Important aspects of inventory account like purchases or sales are to be linked or to be tallied with the financial accounts. For example the quantity as shown as purchases in the inventory account should tally with the quantity as shown as purchases in the financial accounts.
Similarly the quantity as shown as sales in the inventory account should tally with the quantity as shown in the financial accounts.
Apart from maintaining a consolidated inventory accounts for all the inventory aspects like purchases, sales, individual ledgers for purchases and sales to be maintained. Individual ledgers for purchase and sales are to be reconciled with the consolidated inventory accounts and financial accounts.
Inventory account plays a major role with regard to the inventory aspect of the company or business. Inventory account enables the business or company to take some remedial measures like improvement of sales, restriction of sales, restriction of purchases, introduction of new products, etc.,
