What is inventory, its types, and the best ways to calculate inventory?

What is inventory, its types, and the best ways to calculate inventory?

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Stock inventory is one of the basic tasks carried out by commercial companies of all sizes and fields of work so that they have a comprehensive knowledge of what they have in their inventory. Because of the great importance of inventory, in this article we provide you with a comprehensive guide on what inventory is, its importance, its different types, and methods of calculation. Follow us.

Stock Inventory Concept

The concept of inventory refers to the process of counting and calculating items, finished goods, raw materials, and other materials that large companies or medium and small shops own in their warehouses and use in production or sales processes according to their activity. Stock inventory can take place at different stages of production. And at different time intervals. But what are the types of stock-inventory processes? And how do they differ from each other?

Inventory types

There are many types of inventory, and they differ among themselves by the time period and the method used in the stock inventory process. The main types adopted by commercial companies can be clarified as follows:

Periodic Inventory

Inventory is counted periodically at the end of each specified time period, where the company calculates the inventory and cost of goods sold at the end of the period. This type is useful and effective for medium and small companies that have few products or raw materials, as this type is easy to implement, but it limits the details that the company knows about its inventory at any specific time during the accounting period.

Continuous Inventory

Inventory is counted continuously, that is, after each trade transaction that takes place, and this type allows companies to track their inventory in real time through the use of point-of-sale systems. This type is suitable for large companies that track large-scale sales for its high accuracy, and this does not mean that these companies dispense with periodic inventory, as it is still necessary for them, but it is conducted less than usual and at a lower size and cost.

Sudden Inventory

The main objective of this type is to ensure the integrity of the inventory, the correctness of the preparation of goods or raw materials, and compare them with what is in the books so that the company can detect any possible embezzlement or theft.

The Importance of Stock Inventory

Commercial companies carry out inventory counting mainly to ensure that they have sufficient stock for production or sale to meet the demand of their customers, and the importance of inventory counting can be summarized in the following points:

Determine the financial position of the company.

The importance of stock inventory lies in helping the company determine its financial position accurately in order to make the right financial decisions.

Avoid financial losses.

Inventory requires spending a lot of money on storage, insurance, and transportation, and if stock is not properly and continuously inventoried, this can lead to stock being overloaded, and therefore the company incurs a lot of unnecessary expenses on excess items. On the other hand, if stock is so short that the company cannot meet customer demands, it incurs a lot of sales losses. As a result, maintaining a steady stock inventory saves the company a significant amount of money.

Ensure that the stock is not damaged.

Stock inventory allows you to know which items are approaching their expiration date before this happens and to develop a clear plan for using these items in production or applying offers and discounts to them so that they are sold before they expire, thus ensuring that the stock is not damaged.

Balancing supply and demand

With an efficient inventory process, you can easily track stock to avoid shortages or excess stock. You can also see which goods are in demand the most or which raw materials are consumed the most in production, enabling you to work on providing them in a timely manner so you can balance demand and supply.

Gain a good reputation.

Customer satisfaction resulting from meeting their needs continuously and without delay or interruption naturally ensures their return and acquisition as permanent customers with the company, and this builds your company’s ideal reputation in the market and pushes customers to talk about their positive experiences with your company, thus gaining new customers and increasing profits.

The best ways to calculate inventory

There are several methods for calculating stock inventory, each of which has advantages and disadvantages, so you must know these methods to follow one of them according to the desired goal of stock inventory, and we explain to you some of these methods as follows:

1: FIFO method

FIFO means first in, first out, meaning that the oldest item in stock is the first item sold, which is a great way to keep stock fresh, and it is the most logical way because companies usually use their older stock first to produce or sell their goods.

2: LIFO method

It means last in, first out, that is, the newest item in stock is the first item to be sold, and this way helps to damage the stock. It is not a realistic way for many, as companies do not want to leave their old inventory idle in the inventory; it may expire or be destroyed.

3: ABC Analysis

In this method, stock items are classified into 3 categories, so that this method determines the items that must be reordered frequently and the items that should not be re-ordered, and the categories are as follows:

Class A: For high-value items with low sales.

Class B: For mid-value items with moderate sales.

Class C: For low-value items with high sales.

4: Just-in-Time (JIT)

To avoid over-storage costs, many companies use the “just-in-time” method or the JIT method. Through this strategy, they only ask for what they need to meet immediate demand, which means that there is no excess inventory on hand, and this method saves the company the costs of storage and securing inventory. However, it is a bit risky because a slight delay in ordering new inventory can lead to running out of stock, hence customer dissatisfaction and loss.

Qoyod: Accounting software optimized for inventory

The Qoyod accounting system helps you manage your inventory by providing many professional services in this field, such as product tracking and cost service, through which it displays all the products you sell with the purchase price and the quantity available at the moment if available. You can also search for products easily, as it allows you to search by product serial number, name, or barcode. Products belonging to the same item can also be displayed. Qoyod also lets you view inventory movements for a product, which include all orders for the product with their release date.

One of the most important services provided by Qoyod is the service of linking with POS systems, where you can link it with Qoyod with ease, and as we mentioned earlier, POS systems help you carry out the continuous inventory process. Qoyod also allows you to monitor pricing, manage customers, manage user permissions, generate financial reports for branches, and much more. All of these services help you inventory stock in your company.

Therefore, you can rely on the Qoyod system for any kind of inventory that you follow, and at any time you wish to make an inventory, it guarantees you the accuracy and integrity of the information, it provides you with protection and safety of all information on your stock, and, moreover, it provides you with an integrated set of other professional accounting services that you need to manage your company efficiently and easily and to move it towards success.

Conclusion

After talking about the concept of inventory, clarifying its types, and explaining its great importance, it can be said that it is one of the main pillars of the success of your company, and therefore you must understand it comprehensively so that you can apply it correctly in your company and take advantage of all the positives it offers. Your understanding of it helps you choose the appropriate electronic systems, which help you track your stock, and carry out stock inventory operations of various kinds.

The Qoyod program is the perfect choice for you and your company, as it is an integrated cloud accounting program that provides you with everything you need in your company, from administrative to accounting work. One of its most important advantages is that it helps you automate your internal tasks, as it provides you with linking tools that allow you to link management systems in your company, such as inventory management, procurement, sales, payroll, and many other internal systems, thus automating routine tasks with ease and efficiency. Feel! Activate the Qoyod accounting system and try it for free for 14 days, without the need for a credit card and without downloading.

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