Generally speaking, an inventory is a stock held by an entity that is used in the ordinary course of business. In accounting, inventory is an account in the Statement of Financial Position and Statement of Comprehensive Income which can be classified mainly as raw materials, work in process, and finished goods. Business entities need to record their inventories in an inventory list, or simply known as inventory, to keep track and monitor them.
Hence, the broad term “inventory” may pertain to the goods held by a business entity or the document or list that is used to record those inventories. So, manage your inventories now through the inventory templates and examples presented in this article.
Elements of a Good Inventory
Creating an inventory for the goods held by your entity is vital because they are the ones used in the operations of the business. Someone must be assigned to account for the inventory, monitoring, managing, and keeping track every single one of them. Certain elements must comprise an inventory, and these are as follows:
1. Date: In order to closely monitor the movement of your entity’s inventory, the date when you account your inventory must be present. This is helpful especially when you compare the balance of the beginning inventory to the balance of the ending inventory.
2. Inventory list headers: Typically, the headers that are placed on top of the inventory are inventory number, name, cost, quantity, and net value.
Inventory number: When your company is dealing with large numbers of inventories, the items usually come with numbers, item numbers or barcodes, in order to easily record the item. Inventory numbers would also help in determining one item from another.
Inventory name: The name of the inventory is usually placed next to the inventory number. It may also provide a description of the items as well as its the characteristics, such as color, size, and weight in a concise and clear adjective. You may also see accounting inventory examples.
Amount: This pertains to the amount of each of the items on the list. Note that there are certain cases when similar items on the list have different amounts, for example, those that are purchased from different suppliers. For merchandising entities that involves buying goods that are ready for sale and selling them to their customers, the cost of the item or its original purchase price may also be included as a reference for the selling price as it would be easy to compute for the profit of each item if those two amounts are present.
Quantity: The quantity of each of the items in the inventory must be clearly specified, the beginning as well as the ending quantity. This is important in order to trace lost items and can even be used alternatively to compute for the sales during a certain period (sales=beginning inventory+purchases−ending inventory). You may also see store inventory examples.
Net value: You must also include the net value for each item that is available for sale which is computed as quantity multiplied by the selling price. The total net value is the amount of all the items listed in the inventory.
3. Inventory assets: This refers to the type of items on the inventory depending on the nature of the business—manufacturing, merchandising, and service businesses.
Manufacturing: Since they need to produce the products they are selling to the market, the inventories in a manufacturing company primarily includes the raw materials inventory, work-in-process (WIP) inventory, and finished goods inventory. Raw materials pertain to the basic materials needed to be processed to manufacture products. WIP refers to those materials that are still on the process of being converted into final products. Lastly, finished goods are those that are readily available for sale in the market. You may also see landlord inventory examples.
Merchandising: Unlike manufacturing companies, merchandising entities do not have raw materials, WIP, and finished goods inventory since they do not manufacture; instead, they purchase products that are readily available for sale or finished goods and sell them for profit. Hence, they only use one type of inventory, that is, merchandise inventory.
Service: For service entities, they might not be selling goods, but still, they need certain items to perform their services. These items must be monitored, hence recorded in the inventory.
4. Signature: The signature of the authorized person doing the inventory must also be present in the document to acknowledge that he or she has correctly recorded and checked the items, quantity, and prices listed in the inventory.
In order for an entity to keep track of its goods, an inventory is needed, providing the necessary details of the inventory such as the amount and quantity. However, creating an inventory might be overwhelming at first. But do not worry for here are simple guides on how you can make an organized inventory using a template and from scratch.
1. Creating an Inventory Using a Template: Inventory templates can be very helpful especially when you do not have the luxury of time creating your own format. Here is how you do it:
On your computer, open Microsoft Excel.
At the top of the Excel window, click the search bar and type “inventory list.” A list of templates will then appear on your screen.
Each template offers different features, so choose the template that suits your needs.
Once you have chosen a template, on its preview window, click “Create.”
It may take a few seconds for your template to load, so wait for it to open.
Edit or modify the pre-filled cells by double-clicking it, deleting the number or word, and entering your item’s information. Typically, the inventory list should include the item number, name, price, quantity, and totals.
Finally, after entering your item’s information and before exiting, save a copy of your document. You can do this by clicking “File,” then from the drop-down menu, select “Save As,” and choose a location on your computer to save the file. Do not forget to rename the file name into something you can easily remember, for example, Inventory List January 2019.
2. Creating an Inventory From Scratch: You may also opt to create an inventory from scratch. In order to do so, these are the simple steps that may help you:
Launch Microsoft Excel on your computer, and click the blank workbook on the upper-left side of the window.
On the first row, type the list headers, which typically include the item number, name, price, quantity, and totals.
You can adjust the column widths by clicking the space between two column letters and dragging it to the right to widen and to the left to make it narrow.
Input the information under the item number, name, cost, and quantity.
For the totals of each row, you can use a formula to compute the total amount for each item. For example, type = on the first cell under the header “total,” click the first cell below the header “quantity,” type *, click the first cell below the header “price,” and lastly, press enter. This will immediately compute for the total amount of a certain line item in the inventory. Repeat this formula in all the other items. You can easily copy the formula by clicking the cell with the formula, clicking the “+” sign on the lower-right corner of the cell, and dragging it to the last item on the list. You may also see system inventory examples.
Lastly, save your document by clicking “File,” then from the drop-down menu, select “Save As,” and choose a location on your computer to save the file. Change the name of your file into something you can easily recognize and remember.
Types of Inventories
Inventories can be categorized into the following types:
Raw materials: These are goods purchased by a manufacturer which is used to produce components, subassemblies, or finished goods. Examples of raw materials are minerals, chemicals, paper, wood, steel, and even nuts and bolts if purchased outside the firm. You can also take a look at retail inventory.
Work-in-process: These refer to the materials, parts, assemblies, or subassemblies that are partly processed which may or may not be salable. Typically, this type of inventory goes through final inspection before transferring to the finished goods. Examples of this type are leg assemblies, frames, and casters. You might be interested in process inventory.
Finished goods: This type of inventory refers to those goods that are already completed and is readily available for sale. They have passed the final inspection, hence are ready for a customer order.
Transit inventory: This pertains to the raw materials that are being transported from one site to another for certain purposes like further processing, sales, or purchases. This is typical for those inventories that may take days, weeks, or even months to transport due to long distance.
Buffer inventory: There are certain inventories that are purchased or held for the purpose of meeting uncertainties in the future. Buffer inventory, also known as safety stock, refers to the inventory besides the current inventory held by the entity.
Anticipatory inventory: Some inventories are held for some possible future events which give rise to a positive inflow to the resources of the entity. These events may include a seasonal increase in demand, an increase in the price, or a labor strike.
Decoupling inventory: When working in a product line with a plant or machinery, there are times when the machinery used to make an input for a certain process will stop working due to some technical problems and there is a need for repair and trial runs which take some time to finish. Even though there is a decrease in the input, the company needs to continue its operations. In order to have sufficient input, a decoupling inventory is needed. Check out equipment inventory.
Cycle inventory: As suggested by economic order quantity that attempts to balance inventory holding costs with the cost incurred in setting up machinery, a cycle inventory is needed to balance the carrying cost and holding cost.
MRO goods inventory: Maintenance, repair, and operating (MRO) inventories, also called consumables, serve as a support and maintain function in the production process. Examples of this type of inventory are uniforms, gloves, lubricants oils, tools, and screws.
Theoretical inventory: This is the average inventory for a given throughput assuming that there is no buffer. It is also defined as the minimum amount of inventory needed in order to maintain a process throughput.
What is inventory turnover?
Also known as inventory turns, merchandise turnover, stock turns, turns, or stock turnover, inventory turnover refers to the number of times a business entity replaces or sells its goods for a certain period. Computing the inventory turnover provides insight as to the management of the cost and the effectiveness of an entity’s sales efforts.
What are the implications of inventory turnover?
High turnover indicates increased sales, while low turnover means weaker sales or the declining demand of the product.
Inventory turnover can be used as a basis whether or not to produce more or buy more in order to meet the demands of the customers.
It can be used to sync the purchasing and sales departments in order to lower the holding cost, the expenses incurred while holding the product in the stock room.
What is the importance of an inventory list?
Creating an inventory is important not only to list down the goods owned by the company but also to keep a record of those items in order to properly account for and manage them. In case of fortuitous events, the inventory will also provide information on the amount of inventory lost.