Why Inventory Accounting is So Hard
One of the biggest issues I see with ecommerce business is inaccurate COGS and inventory accounting. This results inaccurate financials and an inaccurate sense of profitability.
Why Accurate Inventory Accounting Matters
Accurate inventory accounting is essential for several reasons:
- It helps you understand your true profitability.
- It allows you to make informed decisions about pricing, hiring, and investments.
- It ensures you have a clear picture of your financial health, which is crucial for attracting investors, lenders, and acquirers.
Why Inventory Accounting is Challenging
Inventory accounting is more than just tracking what you have in stock. It involves understanding the financial implications of your inventory. Unlike other business areas where transactions are straightforward, inventory accounting requires operational maturity and involves many steps, each with financial consequences.
Calculating Cost of Goods Sold (COGS)
To calculate COGS, you need to know the cost of each item sold. This includes not just the purchase price but also additional costs like shipping and tariffs, known as landed costs. By accurately tracking these costs, you can better understand your profitability and make informed decisions.
Watch (or Listen) and Learn
If you want to go deep, watch this episode of the Ecommerce Finance Podcast with me and Brittany Brown
?? Apple Podcasts: https://podcasts.apple.com/us/podcast/e9-why-inventory-accounting-is-so-hard-but-so-important/id1786013525?i=1000696240074
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