What is Merchandise Inventory and Why Do You Need It?

If you're like most business owners, then you're always looking for ways to cut costs and streamline your operations. One area that many small businesses overlook is their merchandise inventory. But what is merchandise inventory, and why do you need it? In this blog post, we'll explore those questions and more. So read on to learn more about the importance of maintaining a healthy inventory!

What is Merchandise Inventory?

Inventory may be in raw material, work-in-progress or finished goods. The value of such stock meant for sale is considered merchandise inventory. In short, merchandise inventory includes all supplies that are meant for sale. Inventory valuation is done at the beginning of every year and at the end of the year. An increase in inventory value may be due to the addition of stock, and a decrease in the inventory value may be due to the sale of stocks.

Why Is Merchandise Inventory Accounting Important?

Merchandise inventory accounting always revolves around the movement of stock or inventories. The query "is merchandise inventory a current asset" is valid as Merchandise inventory is a current asset. If the accounting of merchandise inventory is not done correctly, then it may affect the company's asset value and may depict the wrong amount of the assets. The depiction of the financial position of the company will be inaccurate ultimately.

Even though merchandise inventory accounting is stressful, it has to be maintained accurately. Not only for financial status but knowledge of existing inventory will also make the sales process easy. Especially proper maintenance of merchandise inventory by vendors (in the case of e-commerce platforms) will enable them to handle orders from all over the world.

How To Calculate Merchandise Inventory?

Merchandise inventory can be valued in the following ways:

FIFO method‍

When expanded, it is "First in First Out." In this method, the stock received first from the manufacturer is considered the first one to be sold to customers. Hence these are shipped to the customers. Therefore, the stock rate that has arrived first will be considered while evaluating the dispatching stock.

When expanded, LIFO method is "Last in First Out." In this method, the stock that arrives last from the manufacturer is the first one to be sold to customers. Hence these are shipped to the customers. The stock rate that has reached last will be considered while evaluating the dispatching stock.

Weighted average method‍

In this evaluation method, the cost at which the inventory is purchased is summed up, and an appropriate average is calculated. The evaluation of stock is done based on the average price.

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Conclusion

So there you have it! Now you know the importance of having a healthy inventory and why you should never take your eye off that number. Of course, inventory management can be tricky, especially for small businesses with limited resources. That's where Simpl comes in.

We offer comprehensive fulfillment services that will help you keep your inventory under control so you can focus on what you do best - running your business! Ready to get started? Contact us today to learn more about our services and how we can help streamline your operations.

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