You might ask yourself, should I care if my inventory is correct? Here are the top three reasons you should care.

A. If your actual items count on hand and cost or the inventory actual value are not correct, typically the net profit or loss on your Profit and Loss statement is not correct either. Sometimes that is good news but most often it is not good news.

B. If your inventory costing method is not correct because your software is not strong enough to allow you to manage your inventory or the actual costing method, then you may not know the actual profitability by customer or even by each sales invoice or by item. So how can you then tell who your most profitable customers are? It's not just how much stuff they buy, but what your overall profit margin on them is.

C. If (A and B) are not correct then you may be sitting with too much of one item costing you money to have stuff just sitting on the shelf. You may also be losing sales because you don't or can't get enough in time of another item and the customer may go somewhere else to buy because everyone wants their stuff now.

If all 3 reasons apply to your business you have inventory that is out of control. There really is no reason to lose sleep over inventory which brings me to the next set of helpful hints.

So how do you know if you have a problem? Let's review how easy it is to check without having your consultant or other advisors do this for you.

1. Check the inventory costing method stated on your company income tax return. Make sure that is the costing method that is established for your system default and is associated or defined on each stock inventory item you buy and sell. This can make a big difference in getting real information on the profitability of your items sold.
2. Print an inventory valuation report and compare the grand total inventory valuation dollars stated to the amount stated in your inventory general ledger account on your balance sheet as of the same point in time. Hint “These amounts should be the same”
3. Review the inventory valuation report for items that have a negative quantity on hand or a negative value. This means someone is selling inventory that is not on the shelf and in a lot of systems since there is no quantity on hand, there may a zero cost basis on the item being sold.

See that was not so hard. If any of these apply to your business, you should have concerns about your inventory or how your employees are recording your inventory movement.

OK so we have talked about why we should be concerned and about how to look and see if we should be concerned. Now what do I do? First, I know you don't want to hear this but if your current accounting system is not strong enough to help your business easily manage your inventory in the proper way, change it. You are probably spending more time trying to figure out what the correct information is or redoing all this in excel that you have paid for a new system several times over. You may have lost enough sales to pay for the new accounting software. If your current system meets all your business objectives, then try this.

1. Start by fixing all the items that have a negative quantity on hand or that have a negative cost associated with the item.
2. Do a physical count so you know what is on the shelf. Adjust the current quantity on hand and costs to determine what the real value of your inventory is. Once you think the corrections are done, print an inventory valuation report and check it again. This is typically done at the end of an accounting period.
3. Book a journal entry to bring the actual inventory valuation after the physical count in balance with the stated inventory valuation report. Typically, the offsetting entry for this goes to the cost of goods sold or inventory variance general ledger account. You may want to work with you CPA during this step so they can help you understand the impact.
4. Then take a close look at your year to date profit or loss statement. You won't know until you book this journal entry how big the effect is on your current year profit or loss.

Begin to monitor your progress on a daily basis to confirm you are staying in balance or if new out of balance conditions are created. This is done by taking a look at your inventory valuation at the end of the day once all your system transactions have been posted all the way thru to your general ledger. Then compare the grand total from the inventory valuation report to the balance stated on your balance sheet for inventory. Out of balance conditions typically occur when the software or inventory item has not been set up properly or the user is entering transactions improperly into your accounting system. (FYI - all accounting systems are balanced in this manner regardless of the manufacturer.)

Taking the mystery out of inventory is really not that hard to do. After 25 years of teaching hundreds of users how to do this, I can honestly say it is just a matter of having someone take the time to teach you, the user, what to look for and then what to do once you discover issues. It also means you, the user, have to take 10 minutes and have to take the responsibility to be proactive and look for problems on a frequent basis. It is much easier to correct problems as we progress thru the year than wait and spend a lot of time and money at the end of the year cleaning up a lot of little problems that have turned into a large problem.

If you do want to manage your inventory and your current product is coming up short on ability I would recommend the following:

Peachtree Premium and Peachtree Quantum is designed for businesses with simple inventory needs and has a lot of options on inventory costing methods, does a great job with backorders, easy to e-mail documents to clients and vendors and it is easy to fix problems. There are a lot of nice build in inventory reports so you can easily identify your most profitable customers and the items you sell the most of and which items are the most profitable. It is truly windows based and it is one of the most forgiving software applications on the market.

MAS 90 / MAS 200 is a lot more powerful and packed with inventory features, can be easily customized and interfaces seamlessly to a shopping cart called E-Business Manager. This can handle customer level pricing, has multi warehouse capabilities, alternate items and alias part numbers. You can store year's worth of transactional history, the bill of materials and work order modules are very powerful. It is worth looking at if you need to compare what you are paying for your products across multiple vendors. Additionally, there is also a state of the art barcode system add on that is one of the best and easiest I have ever seen. That's the good news. This product is only for companies that are serious about managing your inventory.

If you are serious about taking the mystery out of managing your inventory and want to look at either of these two software packages, there is a company headquartered in Chicago with offices in several other states that specializes in inventory management www.jcscomputer.com 800/475-1047. They give free demos, migration discounts and are Certified Consultants that can help your business setup and learn these applications.

Let me close with one last statement. “No one and I mean no one will be as concerned about having correct information for your business the way you will.”

Shirley Coop
info@accountingsoftwarereview.com

“Keep it simple sooo…” The top three things most businesses want to know are:

1. Where have we been - have we made any money?
2. Where are we today - do we have any cash and if not where is it?
3. Where are we going - do I know where I am making or loosing money?

If you keep your bookkeeping simple then it will be easy to manage and understand your financial position. With software applications today financial statements are built in out of the box, can be printed, saved and e-mailed in PDF file formats. Some software does a better job of printing professional looking financial statements. Peachtree does a great job on presentation, is easy to customize and fix errors. FRX for MAS 90 and MAS 200 are very powerful for businesses that need a comprehensive mid market solution. Once you learn how to understand financial statements you will not be able to live without them.

First let's look at your profit and loss. Are all sales recorded in the appropriate category or are they all recorded? Are all the expenses required to make your sales also recorded? How does your company's gross profit margin compare with other companies in your industry? These are some of the basic things as a business you should be reviewing on a monthly schedule. Too many general ledger account numbers makes it difficult to post transactions to the correct account. Do set up what you need but be careful, microscopic detail can make it difficult to analysis direct expenses against sales.

Next let's talk about cash. Do you have a manual control total outside of your accounting system? What would happen if your computer crashed and you could not access your bank balances in your accounting application? Are you performing monthly bank reconciliations? With software today there is no reason that a business owner, child or spouse can not have a bank reconciliation completed within a matter of an hour or two, once you receive the bank statement or print it online from your banks web site. If you are making money then your cash may be tied up in inventory, receivables or payables. Do these subsidiaries tie to your trial balance? If you don't know how to perform bank reconciliations or tie subsidiaries to your trial then ask your consultant or accountant to teach you.

Lastly, there are simple steps as a business owner you can take to check your financial health monthly. This review process takes less than 20 minutes and confirms your financial statements include all the activity that affects your profit and loss. Once your financial information is complete you should analyze what your most profitable services or products are. If you are performing this monthly reconciliation then you may just need a plan to help market your most business segments or decrease expenses for your less profitable business segments. This monthly reconciliation is critical if you are seeking additional funding from banks or private sources, they want to see that you have the ability to pay back their money.

If you want to learn the complete KISS principle of bookkeeping JCS Computer Resource, Inc. will be hosting progressive online workshops focused on the KISS principle of Bookkeeping. The first session begins on January 23rd and runs monthly thru December of 2009. You can attend all or just the topics you feel you need. This series of workshops is designed to give the non accountant a basic understanding of your company financials or for anyone who wants to brush up on their bookkeeping skills. Kay Flanery has been helping businesses understand this KISS concept for almost 30 years. Kay's approach to bookkeeping is the KISS method and she has a wealth of knowledge she wants to share with your business. Come learn basic accounting on line from the comfort of your office, gain a better understanding of your financial statements and help your business understand your financial position so you can manage the future of your business.

Progressive Topics

Workshop - 12 monthly sessions, 30 minutes with 10 min Q & A Session:

1. 01/23/2009 What are financial statements?
   1. Balance sheet
   2. Income Statement
   3. Why are they important?
2. 02/20/2009 What is Accounting Method?
   1. Cash Basis
   2. Accrual Basis
   3. What's the difference? OR Why do I care?
3. 03/20/2009 Accounting Principles (mnemonic of 10 principles Becker CPA review course)
   1. Matching
   2. Consistency
   3. On-going concern
4. 04/24/2009 Analyze financial statements - OR how to make the financials a tool you cannot live without!
   1. Compared to prior year
   2. Compared to budget
   3. Why Budget?
5. 05/22/2009 Analyze financial statements - part II
   1. Gross profit
   2. Industry standards - how does my business compare to others in same industry
6. 06/26/2009 Manage Accounts Receivable OR Don't lose your shirt to your dead beat customers
   1. Terms of sale & credit limits
   2. Credit check
   3. Billing & collection tips
   4. Finance Charges & prompt payment discounts
7. 07/24/2009 Manage Accounts Payable
   1. Vendor terms
   2. Prompt payment discounts
   3. Loans or credit cards
8. 08/21/2009 Organize all that paper
   1. Sales & customer info
   2. Bills - paid or unpaid
   3. How long to keep records
9. 09/25/2009 Inventory & Services
   1. What is profitable? What is not profitable?
   2. Prevent out of stock
   3. Prevent over - stock
   4. What is inventory turn-over? Why do I care?
10. 10/25/2009 Budgeting
    1. Getting started if you have never done it
    2. Benefits
11. 11/20/2009 Month-end “close” procedure
    1. Check list
    2. Why should I do this?
12. 12/18/2009 Year-end “close” procedure
    1. Check list
    2. Why should I do this?

If you are interested in attending these workshops each session is $24.95 email kflanery@jcscomputer.com The workshops will run from 3:00pm to 4:00pm Central Time Zone.

Let me close with one last statement. “No one and I mean no one will be as concerned about having correct information for your business the way you will.”

Shirley Coop
info@accountingsoftwarereview.com