Inventory is often an entrepreneur’s biggest investment in the business. A lot of owner’s equity can be associated with inventory. That’s why proper inventory management is important. The business owner should always be aware of the value of this important asset. Often mistakes are made that can affect the perpetual inventory as well as the general ledger value of inventory.
Errors That Affect Inventory Accuracy
Some of the errors that are made during the course of daily operating activities can have a profound effect on inventory accuracy. Errors can be made receiving, selling, ordering and posting to the journals and general ledgers. There could be a discrepancy between inventory and cost of goods sold. Some examples of typical errors that can occur are:
- Receiving the wrong merchandise
- Receiving the incorrect quantities
- Invoicing the wrong merchandise
- Invoicing the incorrect quantities
- Returns and credit errors
- Theft
- Pricing errors
These are just some generalities. Depending on the type of business there can be many more issues that can affect inventory accuracy. Performing periodic physical inventory counts can help minimize some errors. Physical counts are also important to get the real inventory value. To help manage inventory, matching the physical value to the general ledger values helps ensure that errors are minimized to protect asset investment.
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