When accounting for inventory, it’s easy to become overrun when items pile up. If your business is inventory intensive, your inventory or operations manager is likely doing weekly, even daily, inventory reports. These reports will need to be entered into your inventory management system regularly. How efficiently that information moves from operational inventory reports into your official accounting system all depends on the software you use to manage your inventory.
Inventory management and software
Managing inventory accounting is all about time and money. Basically, you have a lot of data that needs to be input into your inventory management system and converted to useful information that you can use to make the most profitable inventory decisions. Because putting that data into your accounting system adds no value for your clients directly (although you could say that effectively managing your inventory can lead to you getting a better price on inventory and passing the savings on to your clients, among other arguments for good inventory management), it’s important to complete this task in a timely manner. You’ll also want to have specific bits of data handy when you are planning your future inventory needs.
There are a variety of options out there for business software. There is Microsoft Excel, a staple in the accounting world. But the fast paced, modern world has time demands that manual spreadsheet software may not be able to meet. This is where specialized inventory management software comes into play.
Microsoft® Excel® is a popular choice for small businesses to manage their inventory. And why not? You already have Microsoft Office handy and it’s supposed to be able to do this stuff efficiently. But nothing compares to specialized software that is designed to handle a specific aspect of your business.
If you have a lot of experience creating formulas, navigating pivot tables, and using v-lookups to find specific data, Excel can be efficient. But it is nonetheless limited. The problem with Excel is that it is manual. Specialized software is automated. This simply means that specialized software is faster, and more accurate. Excel can be automated with formulas, links, and macros, but doing this means you have to design the system yourself. It’s simply faster and easier to purchase software designed by a profession.
First there is the time it takes to create, troubleshoot, and perfect formulas and macros. In Excel these formulas and macros must be created and used manually. Then you need to consider who will be using the formulas. And, usually, all the formulas were created by one person, and if other staff go to use them they may get lost. Specialized software makes these tasks user friendly for all users from beginners to advanced veterans.
Second, navigating large amounts of data in Excel can be complicated; not to say that Excel can’t be efficient, but if you don’t have the Excel training in advanced formulas and data manipulation it’s simply easier to use specialized software with these specific tasks built in.
Another limitation of Excel is design. If you like to design your own spreadsheet and inventory system, Excel can be useful for customizing accounting solutions. But this will ultimately take more time than specialized software and will cost more money in time value than simply using specialized software. Inventory specific software such as inFlow Inventory is also customizable.
When using Excel, you basically have separate sheets for inventory needs. These sheets can be toggled through and if there is only one person working on the inventory for the company, in a proprietorship for example, the data can be only as organized as that person is. Once again comes the point of manual versus automated. The organization of data in Excel is manual, and you often have to keep track of the big picture in your head. Specialized software like inFlow organizes all the data for you. Not only does it do this, it puts it all together for you in one page, known as the dashboard. You can see gross and net sales, cost of goods sold, all items outstanding, and your best sellers for a specific period, all on one page.
Another consideration is data versus information. Excel is great at keeping data, small and large amounts, and with simple data conversion to information using Excel is simple enough. Taking stock counts and matching them to sales records is simple enough with Excel by making a comparative table. Excel’s Autosum will quickly total columns and give you monthly, quarterly, or yearly totals. Formulas to get your top five or ten products can be made easily. But what about if things get more complicated? Multiple locations if your business expands, new products that suppliers may be offering with time sensitive discounts, changing accounting practices for inventory accounting. All these things will need to be managed in real time, and your inventory system will need to be updated frequently. In Excel, once again, this will need to be done manually, taking more precious time from your day.
Financial and tax accounting
Every company or corporation, proprietorship or partnership, must create financial statements, file provincial tax remittances, and complete a T2 federal corporate tax return or T2125 business return. I won’t get into the gritty details of that here. All that can be said is that this stuff is complex and is often done by an external accounting firm, someone with a designation in accounting. At some point, this person will ask you for the details of your inventory reporting. The status of your inventory at year end and the details of sales and purchases, opening and closing inventory, and the methods used to account for inventory (FIFO, weighted average, etc.) will need to be disclosed on your financial statements. The value of your inventory will need to be disclosed accurately on the T2, and its value can have tax implications. Excel can be used to arrive at these totals, but it will take a lot longer and be much more “taxing” on your nerves than simply running a Sales, Purchasing, or Inventory Report from the list of many reports available with inFlow.
Excel will handle all your practical business needs, but it does it with a chip on its shoulder, figuratively of course. It does have templates for purchase orders, invoices, count sheets, and sales reports. But all the information on these sheets (invoice number tracking, items to be purchased, dates, etc.) will need to be entered manually.
Dedicated inventory software, such as inFlow, organizes all your practical needs on one page. You can create and send a purchase order in about four clicks, around two minutes, using the automated drop-down buttons that take data from your vendor list and past purchases. To do this in Excel would take about ten minutes if you knew your vendors really well off the top of your head.
There is also the design concept of integration in software. You can design an Excel workbook to integrate all the sheets into a flow where you enter data into an entry form (you would also need to integrate your Excel with an Access file in this case) and the data automatically travels to different tables and analysis pages. But, again, you have to design it yourself, and this can take a lot of time and headache. Specialized inventory software does this automatically. For example, after you create the above purchase order, the PO Number is automatically input into the rest of the system and will appear on your monthly purchase report.
Specialized accounting software
When you go to complete your income tax return, you wouldn’t do it manually with Microsoft Excel. You would download tax software, quickly enter your income and credit data, and let the software do the rest. You can do the same thing with your inventory accounting.
Simply download the Free Edition of inFlow Inventory software, a complete inventory management system, to get started. If you like how it works, upgrade to a more robust version on the inFlow website.