Understanding Inventory Management: An Accountant’s Perspective
Prior to my current role in software implementation, I worked as a bookkeeper while getting a degree in Accounting. After graduation, I really had a passion for cost accounting and wanted to work with businesses to help get their inventory and processes under control. Now, I work with many small to mid-sized businesses to implement inventory management software to enhance their day-to-day operations. Having both knowledge and background in accounting and inventory management software gives me a uniquely integrated way of viewing business operations.
What are common methods of tracking inventory?
Different businesses may use different systems to manage their inventory including: pen and paper, Excel spreadsheets, QuickBooks® software, and inventory management software.
Pen and paper, as well as spreadsheets, are considered manual methods of tracking inventory. This is because the user(s) must update any changes to inventory levels — such as added inventory from purchases or sold items — by hand.
QuickBooks software and inventory management software are automated methods of tracking inventory. By using a software system, inventory is updated by the software to reflect any changes to inventory levels including any changes from purchases and sales.
To learn more about inventory systems, check out this article that discusses the different types of inventory systems.
What is QuickBooks software?
QuickBooks is a small to mid-sized business accounting software that also dabbles in inventory.
It is easy to learn and use, so it’s great for small to mid-sized businesses that may not have an accountant on staff to keep track of finances. It’s still a valuable program to have for a business with an accountant on staff because of its useful features such as financial reporting and tax calculations.
QuickBooks also has inventory management capabilities. However, since its main focus is on financial management and reporting, it’s not as functional as inventory management software, which is specifically equipped for inventory management.
What is inventory management software?
Inventory management software is a software package that allows you to not only transact all of your inventory processes but it also allows you to keep track of all transactions. All inventory data is in one place (the software system database) and also linked to what those processes were for, as well as the customers and vendors associated with each purchase or sale.
You’ll have the complete history for your product, which goes through a general ledger as it would for cost accounting, using cost of goods sold and inventory asset accounts. It’s mostly based on accrual accounting, not cash accounting, because of tracking accrued liabilities.
What is the difference between QuickBooks and inventory management software?
There are a lot of differences, but to be simplistic about it, QuickBooks doesn’t have the internal controls that inventory management software does, nor does it have the full functionality offered by inventory management software. This means more complex features and functionality such as lot and serial number control, landed cost, and inventory valuation and costing (just to name a few) are better suited for inventory management software.
For instance, Acctivate inventory management software has all available cost methods. With Acctivate, you also have the choice between each item on how you track it. Users can choose to track lot or serial numbered items with Actual cost, other items with Average cost, and the remaining items with FIFO, LIFO, or Standard cost. It all depends on what makes sense for your business. Additionally, any change in Acctivate is prospective, not retrospective, so it will not affect any past transactions. This is not the case in programs like QuickBooks.
Here’s the good news: you are able to utilize both the power of QuickBooks and inventory management software. That’s because some inventory management software integrate directly with QuickBooks, meaning that QuickBooks and the inventory management software systems essentially “talk” to each other by synchronizing data and information from one program to another.
For instance, when you post a transaction in Acctivate, the financial records are sent to and saved in QuickBooks. Then, when it’s tax season and/or it’s time for an accountant to review your finances, all the financial information from your inventory, purchasing, and sales history is ready in QuickBooks. So you can have the best of both worlds — financial management with QuickBooks and inventory control with inventory management software.
You can learn more about QuickBooks and inventory management software integration here.
Who is the right fit for inventory management software?
Inventory management software can benefit any and all businesses, and is an affordable investment for small to mid-sized businesses. Inventory management software is a vital investment for businesses because of the importance of keeping inventory values and records organized, as well as the time, money, and effort saved with the features available.
Some examples of businesses that would benefit the most from using inventory management software include wholesale, manufacturing, and distribution businesses. However, any business wanting to run a tight ship with finances and their supply chain, as well as those wanting to integrate and keep track of omnichannel inventory (such as in-store and web store inventory) are also great candidates for inventory management software.
About the Author: Lauren Stine is the Manager of Implementation for Acctivate Inventory Management Software. Armed with a Bachelor’s Degree in Accounting, Stine’s extensive knowledge and background allow her to finely blend accounting expertise with technical skills and support. She has been working directly with customers to train them on Acctivate Inventory Management Software since 2012.
For more information, articles, and resources on inventory management, check out Acctivate’s blog or contact a specialist at 817-870-1311.
