The Two Basics of Inventory Accounting Every Product-Based Business Needs to Master

For any business that sells physical products, inventory is more than just a line item—it’s your biggest asset, your largest cash outlay, and a major driver of your profitability. Yet many business owners don’t have a clear grasp on the two foundational elements of inventory accounting.

Here’s what you need to know:

One:  Know What You Have and Where It Is

Inventory is dynamic. It’s stored in your warehouse, maybe a 3PL, maybe even split across different locations. Knowing exactly how much inventory you have and where it is located is vital for operational decisions like reordering, sales planning, and understanding your cash position.

This isn’t just about control, it’s about cash. Inventory is likely your biggest spend, and without clarity on what’s sitting on your shelves (or someone else's), you’re flying blind.

Two:  Know What It Costs—Your True COGS

Cost of Goods Sold (COGS) isn’t just what you paid your supplier. It includes shipping, duties, handling, packaging—everything it takes to get a product ready to sell. This is what’s referred to as your landed cost.

When you understand the true cost of your products, you can price them more accurately, maintain healthy margins, and make informed decisions about promotions, discounts, and buying in bulk.

Why This Matters

When you nail these two basics:

• You have the data you need to forecast and plan intelligently.
  
  
• You can make strategic decisions around cash flow.
  
  
• You avoid overstocking or stock-outs.
  
  
• Your financial reporting becomes far more accurate.
  

At Accountfully, we help clients master these fundamentals using a simple but powerful tool: our Inventory Workbook. It tracks procurement, calculates landed costs, and reconciles your counts to the balance sheet monthly.

You don’t need a fancy system to get started. Spreadsheets work just fine, as long as you’re consistent.

Final Thoughts

If you only do two things with your inventory today, let them be these:

• Count what you have, and where it’s stored.
  
  
• Calculate the full cost of your product, all the way through to warehouse readiness.

These are the foundational steps toward mastering your inventory and building a more profitable, sustainable business.

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If you need help, reach out to us for ways we can help you maximize and understand your inventory.