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Importance Of Inventory Management

Paper type: Essay
Pages: 10 (2375 words)
Categories: Management
Downloads: 47
Views: 48

The baseline of all commercial enterprise is the “Buy and Sell” of products and services; there Is the Importance to have a good Inventory management. This accountability management will allow the company or firm to maintain timely control as well as remain knowledgeable and well inform about the where does the company stand economically after conducted the inventory.

Also the Inventory constitute Items of current assets that are readily available for sale, meaning all the merchandise still in the warehouse also known as shelf or stock items, that are alluded at the cost of acquisition, pending to be distributed and generate profit for the company.

So why do you need inventory? In a Just- in- time manufacturing environment, inventory is considered waste.

However, in environments where an organization suffers from poor cash flow or lacks strong control over (1) electronic information transfer among all departments and all significant suppliers, (2) lead times, and (3) quality of materials received, inventory plays important roles (Mueller, 2001).

Accounting for inventories comprises very important for the accounting of goods, for he sale of inventory is the heart of the business. Inventory is usually the largest asset on their balance sheets, and inventory costs, called cost of goods sold, are usually the largest expense in the income statement.

Enterprises engaged in the purchase and sale of goods, as this is their primary function and which give rise to all other operations, they will need a steady summarized and analyzed information on their inventories, which requires the opening of a number of main and auxiliary accounts related to those controls. Between these accounts we can name the following: Initial inventory Purchases Returns on purchases Cost of purchases Sales Returns on sales Goods in transit (shipped) Goods in consignment (retailers) Final inventory The Initial Inventory represents the value of the stock of goods on the date that began the accounting period.

This account is opened when the inventory control in the General Staff, is carried based on the speculative method, and will no longer be moving until end of the accounting period that will close under cost of sales or by Profit and Loss directly. Re- sell them for profit and are part of the object for which the company was established are included. Not included in this account to buy Land, Machinery, alluding, equipment, facilities, etc. This account has a debit balance, is not in the balance sheet of the enterprise, and closes Profit and Loss or Cost of Sales.

Returns on sales refers to the account that is created to reflect all that the company purchased merchandise returned for any reason; although this has decreased the purchase of goods shall not be paid to the account purchases. The costs for purchases of goods should be directed to the account entitled Purchasing costs. This account has a debit balance and is not in the Balance Sheet. According to Mueller in the Essentials of Inventory Management, Inventory brings with t a number of costs, including: Dollars, Space, Labor (receive, check quality, packaging, shipping, etc. , Deterioration, Theft (Mueller, 2011). Sales: This account will handle all sales of goods made by the Company and were purchased for this purpose. On the other hand we also have Returns on Sale, which is designed to reflect the returns made by customers to the company. At times, especially if the company buys abroad, that we have made some payments or made commitments to pay (documents or drafts) for the company purchased goods but for reasons of distance or other circumstances, still not been received at he warehouse.

To account for this type of operation should use the account: Goods in Transit. On the other hand we have the account named Merchandise Consignment or Goods Consignments, which is nothing but the account will reflect the goods that have been acquired by the company in consignment & quota; over which they have no right of ownership, therefore, the company is not obliged to cancel until they have not sold. The Current Inventory (Final) is performed at the end of the accounting period and corresponds to the physical inventory of the goods of the company and its corresponding value.

Relating this to the initial inventory, with purchases and net sales for the period Gross Income or Losses from Sale of this period will be obtained. The internal inventory control begins with the establishment of a purchasing department, which shall manage the purchasing of inventories following the procurement process. Some inventories are inevitable. All or at least part of the manufacturing process inventory is inevitable.

At the time of conducting the inventory count, some of it will be on machines other party is in the process of moving from one machine to another, r in transit warehouse of raw materials to the production line or this, the finished However, we can often minimize this inventory through better production scheduling, or by a more efficient organization of the production line, or through a more efficient organization of the production line. Alternatively, we could think of subcontracting some of the work to be done, so that the burden of carrying out the inventory in process for the subcontractor.

Sometimes is convenient to accumulate inventory in process to avoid problems related to scheduling and production planning. If it’s a well thought out policy, this well; forever often proves an easy way to bypass a difficult task. The rest of the inventory to be taken into accessories, raw materials, in-process items and finished goods remains Just one basic reason. Mainly because you have inventory allows us to perform the functions of purchasing, production and sales at different levels.

In manufacturing, in-process inventories are an absolute must, unless each individual part is carried from machine to machine and that they are prepared to produce a single part. Functions: ; Elimination of irregularities in supply ; Bulk purchases and/ or bulk production ; Allow the organization to manage perishable materials Consolidation of labor Decisions about inventories: There are two basic inventory decisions that managers must make when trying to perform inventory functions. These two decisions are made for each item in the inventory: 1 .

What amount of an item order when the inventory of that item is to replenish. 2. When to replenish the inventory (re-stock) of that item. TYPES OF INVENTORIES Perpetual Inventory (running inventory): It is conducted continuously in accordance with the stock in the warehouse, through a detailed log that can also serve as a major assistant, where the amounts in monetary units and physical quantities are carried. At short intervals, the inventory of the different sections of the store is taken and the amounts or the amounts or both are adjusted, as needed, in accordance with the physical features.

Running records are useful for preparing monthly, quarterly or interim financial statements. The business can determine the cost of ending inventory and cost of perpetual/ running system provides a high degree of control, because the inventory records are always current. Previously, businesses were using the perpetual inventory system primarily for high unit cost, such as Jewelry and automobiles; Today, with the utilization of this method angers can make better decisions about the quantities to buy, price to pay for inventory, customer pricing and terms of sale to offer.

Knowledge of the amount available helps protect inventory. Flashing, periodic or intermittent Inventory: It is an inventory is made several times a year. It is resorted to, for various reasons, can not be entered in the permanent accounting inventory accounting, which it is partly meet. It is an inventory made in some time and not all at once at the end of the reporting period. Final Inventory: It is the inventory which the merchant conduct at the close of the fiscal year, usually t the end of a period, and used to determine a new balance sheet in that direction after completion of all business operations of the period.

Initial Inventory: It is the inventory conducted at the beginning of any operations. Physical Inventory: It is the actual inventory, is when you count, weigh or measure and record each and every one of the different kinds of goods (freight), which are in existence on the date of the inventory, and evaluate each of these items. It is done as a detailed list of stocks valued. Inventory determined and checked by observation with a list of counting the actual weight measured or obtained. It is the calculation of inventory carried by a listed stock actually possessed.

The completion of this inventory is intended to convince the auditors that inventory records accurately represent the value of the main asset. The preparation of physical inventory consists of four phases, namely: Inventory management (preparedness) Identification Instruction Inventory of Finished Goods: All goods manufacturer has produced to sell to their customers. Inventory in Transit: They are used in order to sustain operations that support the chain linking the company with its suppliers and customers, respectively. They exist because the trial must be moved from one place to another.

While the inventory is on the way, you cannot have a useful function for plants or customers, exists solely for the transport time. Inventory of Raw Material: Represent stocks of basic inputs of materials to be incorporated in the manufacturing process of a company. Inventory in Process (work-in-process inventory): They are inventory held as labor, other materials and other indirect costs to gross raw material is added, which will conform to either a sub- assembly or component of a finished product; while not complete its manufacturing process must be in-process inventory.

Consigned Inventory: Inventory that accounts for all commodities delivered to be sold but the property title it retains by the seller. Minimum Inventory: This is the minimum amount of inventory to be maintained at the warehouse. Maximum Inventory: Due to the focus of crowd control employed, there is a risk that the inventory level can get too high for some items. Thus inventory level is set up. It is measured in months of forecasted demand and the change in surplus is: X > Imax. Available Inventory: It is all available inventory for production, sale or distribution.

It is applied when the stock management of a single item represents a high cost to minimize the cost impact on inventory management; items are grouped either in families or other material classification according to their economic importance, etc. Online Inventory: It is that inventory is waiting to be processed on the production line. Inventory in Quarantine: It is all inventory that must meet a storage period before disposing thereof is applied to consumer goods, groceries or other generally. Forecasted Inventory: Inventories that are taken in order to cover a well-defined future need.

It differs with Edgar to safety in the forecast are taken in the light of a need that is known with reasonable certainty and therefore involves less risk. Inventory of Security: Are those inventories that exist in a given company as a result of uncertainty in the demand or supply of units at that location instead. Inventories of raw materials concerning security, protect against uncertainty in the performance of suppliers due to factors such as waiting time, strikes, holidays or units to be of poor quality cannot be accepted. They are used to prevent missing due to uncertain demand fluctuations. Inventory of Goods:

These are the goods that are available, although not sold in a given time. Inventory Fluctuation: These are carried because the amount and timing of sales and production cannot be decided accurately. These fluctuations in demand and supply can be offset by reserve stocks or security. These inventories are in workplaces where the workflow cannot be completely balanced. These inventories may be included in a production plan so that production levels will not have to change to meet the random variations in demand. These inventories are established in advance of periods of increased demand, trade rumination programs, or even plant closure period.

Basically inventories stored prior work-hours and machine hours for future needs and limit changes in production rates. Inventory of Batch or lot size: These inventories are requested in batch size because it is more economical to do so I ask when necessary to meet demand. For example, it may be more economical to take a certain amount of inventory to order or produce in large batches to reduce recruitment costs or request or to obtain discounts on items purchased. Seasonal Inventory: The inventories used for this purpose are designed to meet seasonal demand more economically varying production levels to meet fluctuations in demand.

These inventories are used to smooth the output level of the operations, so that workers do not have to be contracted or frequently leave. Cyclic Inventory: Inventories are required to support the decision to operate as batch sizes. This occurs when, instead of purchasing, inventory produce or transport unit at a time, can be decided batch processing, thus stocks tend to accumulate at various locations within the system. There are many acceptable bases for valuation of inventories; some of them are insider acceptable only in special circumstances, while others are of general application.

Issues relating to the valuation of inventories, the main importance is consistency: Accounting information must be obtained by applying the same principles throughout the accounting period and for different accounting periods so that it is feasible to compare the United different financial periods and the evolution of the economic entity; well as compared to Financial Statements other economic entities. The main basis for valuing inventories is: Cost Sales price Cost Basis for valuation of inventories: Cost includes any additional costs necessary to place the items on the shelves.

Incidental costs include import duty, freight or other transportation costs, storage, and insurance, while the articles and / or raw materials are transported or are in stock, and incidental expenses for any period of aging. Base Cost or Market, the lowest The market price may be determined on any of the following bases, depending on the type of inventory in question. Base Cost of replacement: This base is applied to goods or materials purchased. Base Cost of Reposition: It applies to items in process; it is determined based on market prices for materials, revealing wage costs and the costs of current manufacture.

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Importance Of Inventory Management. (2020, Jun 02). Retrieved from https://studymoose.com/importance-of-inventory-management-2-new-essay

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