Inventory management is the efficient mechanism of ordering, storing, and use of the company’s inventory. The process includes the management of raw materials, components as well as finished goods. Further, the management of warehoused products and work in process items also fall under efficient inventory management.
Inventory management helps to know when to re-stock inventory, what amounts to purchase or produce, what price the products can be sold as well as the timing of sales to be made.
How to organize Inventory for small businesses?
Small businesses need to be cost-effective in the selection of various methods of inventory management. Here are the ways small businesses can use to organize their inventory:
1) Managing purchase orders
Small businesses shall start with creating and submitting accurate purchase orders. Purchase orders are used for the requisition of raw materials or goods to make resale. Managing purchase orders helps in tracking the movement of stock purchase efficiently to placement and payment of bills.
Purchase orders management helps the owners to estimate the cash flows of the business and also the need to re-stock the inventory levels. The stock re-order alerts can also tell which items are sold fast and slow and which needs refilling or restocking early.
2) Organizing vendor data
Small businesses need to set up stock and vendor information in their software or daily books. They can use excel sheets however they need to manually organize their spreadsheet. They need to organize data using point of sale mechanism.
They need to record each product’s information along with subsequent vendor details. The various details that need to depicted are product name, a short description of the product, product category, sizes, regular selling price, reorder quantities, details of the package, etc.
Using Point of sale mechanism helps to keep product details organized and in real-time. Further, it helps to track various post sales aspects such as vendor billing information, payment terms and contact of vendor.
3) Tagging and Labelling inventory
This is the step when the inventory comes in the hands of small businesses. This means managing the products on your hand. Tagging means allocating the prices and affixing price tags while product label displays mean using bar code labels, tracking the inventory to speed checking out i.e. selling the product.
The use of good allocation of time to tag and labeling of inventory helps in making quick checkout of the product. The point of sale mechanism emphasizes the use of bar code scanners. These scanners also come with the function of effective labeling and scanning.
ted, labels can be affixed directly to product packaging or attached to hang tags. Some inventory might even arrive prelabeled with manufacturer’s bar codes, which you can also track in your POS. In that case, your job is easy. You can just add a price label.
4) Physically counting inventory levels
This is a very time-consuming task and excessively mundane. However, this process is a must for small businesses. All the irregularities and reconciliations can be easily solved through physical verification and counting of inventories. For tax purchases, annual counting is a must and done at the end of the fiscal year.
Doing physical counts helps to reduce shortages, displacement, and errors in receipt of stocks. To catch these mistakes, counts should be done in a smaller time period. This can include spot counts at the time of receipt of the product from the vendor.
While stock count should be started with inventory in hand, spot counts should be matched to invoice or purchase orders.
POS mechanism can used by scanning the items and it can be nearly as useful as physical counting. However, when shortages are found, one should resort to physical counting.
5) Reconciliation of differences in inventory
After the physical counting of stocks, the differences if any shall be reconciled. This can be done by following the procedure of reconciliation. The first step would be to identify the discrepancy in counting. This can be due to inventory missing due to theft, damaged, and not reported and stock recorded as received but not actually received.
In a few cases, it can be just due to reasons owing to wrong labeling. If reasons cannot be known, the stock sheet needs to be adjusted to reflect physical balance in hand. After the adjustment in the books, the difference in any shall be accounted for loss in inventory as inventory shrinkage.
The small businesses shall carefully look if any human error has occurred intentionally or unintentionally. Further, small businesses can use various security features like access policy to stock and locking systems in order to reduce theft of stocks done intentionally.
These are an acknowledgement of arrangements being done between two parties in consideration for monetary benefits. Consumers generally receive receipts from vendors and service providers from their business dealings.
Business receipts need to be documented and recorded as per relevant laws and regulations like the Companies Act, Tax regulations, etc. Furthermore, the period of reservation would depend on the size and nature of the business. Typical business receipts include :
- Cash and credit sales receipts, invoices
- Purchases of raw materials and bills of lading/transportation.
- Cash register receipts
- Petty cash slips for small payments made in cash.
What receipts need to be kept?
Business receipts need to be kept to comply with laws. There are various requirements as per different laws. However as per IRS(Tax Authority of USA), “Good records will help you monitor the progress of your business, prepare your financial statements, identify sources of income, keep track of deductible expenses, keep track of your basis in the property, prepare your tax returns, and support items reported on your tax returns.”
This particularly does not outline the exact requirements of what and how much. However, one can gauge out the requirements based on industry standards and try to comply with laws.
The business receipts related to following items are mandatorily to be reserved:
- Other expenses
- Car and truck expenses
- Professional services
- Tours and travel expenses
How long to preserve records?
IRS goes back to six years at best. However, audit laws sometimes goes back as much as 8 years. So, it would be only prudent to preserve records going back 8 years.
Ways to organize business receipt:
The businesses should try to create a better filing and recording systems in order to cope with organizing business receipts.
A small business may not need an elaborate system but scaled up businesses need to have a system to better record the receipts and find them whenever necessary. Here are effective ways to organize business receipts:
Paper recording will require large spaces and it will be costly for any business regardless of their size. The businesses should therefore try to go paperless right from the beginning. However, certain aspects of the business need to be done in physical papers like contracts.
These need to be digitized immediately. Further, paper records should also be kept as there is no other way. The business receipts can be modified and electronically stored.
Invest in supplies
The various supplies helps in effective organization of receipts. These supplies include investment in files, folders, software applications and storage. These supplies help in the categorization of documents.
The business receipts for example can be categorized alphabetically or chronologically. Small businesses can use envelope instead as records are low. However, every business needs to label these supplies effectively.
Digital storage and use of software
The software applications are very useful in digital storage and automation of regular works. The businesses need to back up digital receipts in order to lose financial records. The scanners can be used to convert paper records to digital.
Various software applications are readily available. For example, QuickBooks is used to record accounting records and receipts and can be used to back up these records as well.
After making the above steps, the important aspect of organizing business receipts is to organize them by category. This helps to save time and allows the user of records to refer back to old records without any hassles. The following are the categories generally used for tax and business purpose in the filing, storage and retrievals
- Tours and travel expenses: These include expenses meeting tax-deductible for travel expenses such as airfare, baggage, and shipping, actual expenses, toll expense, meals during travels, etc
- Advertising and promotion: This shall include expenses for business cards, mailing lists, preparation of brochures, website designs, development, and maintenance.
- Professional Fees: This shall include receipts related to accountant’s fees, bookkeeping fees, attorney’s fees, other professional consultants’ fees directly related to business
- Charitable contributions: These are tax-related records. These are contributions by a specific corporation to a qualified charity that can be deductible as business expenses.
- Purchases and sales receipts: These are related to daily business transactions made during the period. Purchases of raw materials and sales of finished goods are the thesis of the records here. These help in timely payment and inventory management.
- Training expenses: Often taken as education expenses, these are tax-deductible expenditures. The businesses shall therefore categorize expenses relating to the training of employees, education of internships, costs related to internships, as training expenses.
List of Sources of Accounting Documents
There are many business transactions occur every day in an entity and those transactions are records and control by different sources of documents. Some of those documents are recorded and reported for operational reporting. Some of them the accounting documents that use for recording financial reporting.
The following is the list of 11 sources of accounting documents that you should know if you are looking for jobs in accounting, financial audit, bookkeeping, or you are the student in the accounting field.
Understanding those accounting sources of documents is quite important and it may help you easily communicate to your coworker as well as auditors. In this article, we are going to explain to you the 11 types of source documents. Here we go!
What is a quotation?
It is a source of accounting document that sent to a customer by a company stating the fixed price that would be charged to produce or deliver goods or services if the customer accepts. Quotations tend to be used when businesses do not have a standard listing of prices for products.
For example when the time, materials and skills required for each job vary according to the customer’s needs. Quotations can’t be changed once they have been accepted by the customer.
To issue the quotation, most of the companies require a specific requirement from the customers first. For example, type of product, and the number of units they expected orders.
In normal cases, the company that issued a quotation set the specific period of time that the prices are eligible for order.
One of the most important rules of the quotation is it is using by the requesting company to make the price comparison.
Some companies required two or three quotations for a certain amount of purchases. it is one of the most important accounting documents you should well understand.
What is the Purchase Order?
The second source of accounting documents in the is article is Purchase orders. Let make it is more natural. After you request the quotation from a few suppliers, and then you found one supplier that its quotation is compatible with your requirement, and you make the purchase order.
So purchase order is a type of document of the company that details goods or services which the company wishes to purchase from another company.
Two copies of a purchase order are often made, one is sent to the company from which the goods or services will be purchased, and the other is kept internally so the company can keep track of its orders. Purchase orders are often sequentially numbered.
Purchase order normally issued and signed by the one who authorized to do so in the purchasing department or sometimes has to be approved by the CEO or Director.
What is Sale Order?
Now, to make you less confused, let say you are in the suppliers and you just received the order ( purchase order) from your customer. Now you create the Sale Order for the warehouse or sales team to deliver the goods or services to your customers.
So in theory, Sale order is a type of accounting documents of the company that details an order placed by a customer for goods or services. The customer may have sent a purchase order to the company from which the company will then generate a sales order.
Sales orders are usually sequentially numbered so that the company can keep track of orders placed by customers. Make sure you are not confusing with Purchased Orders.
Goods Received Note:
What is Goods Received Noted?
Now assume you are the customer and you just make an order of goods for your company. The supplier now delivers the goods to your warehouse and you are receiving them.
You are preparing the documents that list down the goods that you receiving. These documents called Goods Received Noted.
In theory, Goods Received Noted is the type of document of the company that lists the goods that a business has received from a supplier.
Goods received note is usually prepared by the business’s own warehouse or goods receiving area. Make sure you are not confusing it with Goods Dispatched Noted. Goods Received Noted is one of the important accounting documents you should clearly know about.
Goods Dispatched Note:
What is Goods Dispatched Noted?
A document of the company that lists the goods that the company has sent out to a customer. The company will keep a record of goods dispatched notes in case of any queries by customers about the goods sent.
The customer will compare the goods dispatched a note to what they receive to make sure all the items listed have been delivered and are the right specification.
What is an invoice?
Well, the invoice is one of the Sources of Accounting Documents that you probably see every working day. Let say you just order and receive the goods from your supplier.
Once you received, most suppliers hand you the invoices at that time you received or some will hand latter. This document contains the units you received, unite price, subtotal and grand total per invoices. This document called invoices. Most of the students know it very well.
Statement or Account Statement:
What is the Account Statement?
On a monthly basis, for credit purchase, mostly the suppliers send the statement which contains all of the outstanding items that you or your company owe to them. This document called an account statement.
So, the account statement is a type of accounting documents sent out by a supplier to a customer listing the transactions on the customer’s account, including all invoices and credit notes issued and all payments received from the customer.
The statement is useful as it allows the customer to reconcile the amount that they believe they owe the supplier to the amount the supplier believes they are owed. Any differences can then be queried.
What is Credit Noted?
Well, Credit Noted is an accounting document sent by a supplier to a customer in respect of goods returned or over-payments made by the customer. It is a ‘negative’ invoice. This is discussed further below.
Remember! Credit Note is the documents sent by suppliers to customers, not from customers to suppliers.
Explanation About Credit Noted
Probably there are few selling transactions or hundreds of selling transactions over a month.
The invoices that suppliers sent to their customers probably contain the items that customers reject, return, as well as the payment made from customers may be overpaid.
If that case happens, suppliers normally send the Credit Note to make the cancellation, or as the result of the request from customers. The request from customers normally done by Debit Note. We well discuss the latter.
What is Debit Noted?
Well, Debit Noted is a document sent by a customer to a supplier in respect of goods returned or an overpayment made. It is a formal request for the supplier to issue a credit note.
Explanation About Debit Note
So let assume you are the accounting documents and there are few items in the invoices that you received from the suppliers that are not received or reject by you. That means the invoices are overstated.
At this stage you have two simple options, one is requesting your suppliers to reissued the Invoices or you asking them to issue the Credit Noted to reduce the amount in the invoices.
If your choice to asking them to issue the Credit Noted, you have to issue the Debit Note to them.
What is Remittance Advice?
Well, Remittance Advice is accounting documents sent to a supplier with a payment, detailing which invoices are being paid and which credit notes offset.
Remittance advice allows the supplier to update the customer’s records to show which invoices have been paid and which are still outstanding.
It also confirms the amount being paid, so that any discrepancies can be easily identified and investigated.
Additional Explanation About Remittance Advice
Assuming you are well understanding about Account Statement, if not, we would recommend you to read again.
So after you received the Account Statement from your suppliers, you make the payment for all or part of the statement. You wish to advise your suppliers about this payment, this Advice called Remittance Advice.
The receipt or Official Receipt
Official Receipt is a document confirming confirmation that a payment has been received. This is usually in respect of cash sales, eg a till receipt from a cash register.
Official Receipt normally uses for a cash transaction. Let say you purchase some small material by cash, once you made a payment, the cashiers normally issued the documents to confirm the amount they received for which items you being paid.
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Conclusion: List of Sources of Accounting Document provide above might not include all of the accounting documents. In case you want to know more, please commend below.