{"id":661,"date":"2025-07-28T22:30:40","date_gmt":"2025-07-28T22:30:40","guid":{"rendered":"https:\/\/www.shipbob.com\/uk\/blog\/inventory-accounting\/"},"modified":"2025-10-16T09:18:34","modified_gmt":"2025-10-16T09:18:34","slug":"inventory-accounting","status":"publish","type":"blog","link":"https:\/\/www.shipbob.com\/uk\/blog\/inventory-accounting\/","title":{"rendered":"What is Inventory Accounting? Here\u2019s What You Need to Do Inventory Accounting Right (Every Time)"},"content":{"rendered":"\n

Table of Contents<\/p>

** Minutes<\/p><\/div><\/div>\n

What is inventory accounting?<\/a><\/p>\n\n\n\n

Why is accounting for inventory necessary?<\/a><\/p>\n\n\n\n

How inventory bookkeeping works for retail and ecommerce businesses <\/a><\/p>\n\n\n\n

IFRS vs. GAAP: Key differences in inventory accounting <\/a><\/p>\n\n\n\n

How to account for inventory: top 4 methods <\/a><\/p>\n\n\n\n

Let ShipBob take care of inventory tracking and management<\/a><\/p>\n\n\n\n

FAQs<\/a><\/p>\n<\/div>\n\n\n\n

The flow of inventory is the lifeblood of ecommerce businesses. You need to know which SKUs<\/a> you have on hand, how to budget for and predict demand<\/a>, and how much your inventory is worth. <\/p>\n\n\n\n

 But the value of your inventory can change over time, which makes it tricky to keep track of. This is where good inventory accounting comes in; it helps you manage changing inventory values effectively. <\/p>\n\n\n\n

In this post, we\u2019ll walk you through inventory accounting best practices for ecommerce businesses, and explore the role it plays in your ecommerce operations.  <\/p>\n\n\n\n

What is inventory accounting?<\/h2>\n\n\n\n
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Inventory accounting is the process of tracking and accounting for changes in the value of inventory over time as it relates to manufacturing and costs of goods sold. <\/p>\n<\/div>\n\n\n\n

Inventory as an asset vs. an expense <\/h3><\/div>
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Inventory is usually classified as an asset. After all, it\u2019s something your business expects to sell, which generates revenue. So, until you sell the inventory, it falls under a current asset on the balance sheet. <\/p>\n\n\n\n

Once you sell inventory, the value of that inventory becomes an expense that\u2019s recorded as cost of goods sold<\/a> (COGS) in your income statement. COGS represents the direct cost of producing or procuring the goods that you sold (which you can later use to calculate gross profit).  <\/p>\n\n\n\n

Example: Say your business makes candles. You make 15 candles in a single batch, and each candle costs you $10 to make. Inventory is valued at its cost, not its selling price, so you have $150 worth of inventory. But you haven\u2019t sold them yet \u2014 so on your balance sheet, you record $150 as an asset on your balance sheet. <\/p>\n\n\n\n

You end up selling all 15 candles. On your income statement, you record $150 in COGS, because that\u2019s how much it cost to product the 15 candles you sold.  <\/p>\n\n\n\n

If inventory get damaged or becomes obsolete,<\/a> it can be expensed immediately, without having to be sold.  <\/p>\n<\/div><\/section>\n\n\n\n

Why is accounting for inventory necessary?<\/h2>\n\n\n\n

If you don\u2019t have an accurate method for keeping track of the value of your inventory, you can\u2019t properly value your assets or goods sold and budget for the raw materials <\/a>you need to buy for your business. Here are some of the benefits of accounting for inventory in each accounting period. <\/p>\n\n\n\n

Calculate accurate profit<\/h3><\/div>
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The accuracy of your financial statements is directly dependent on the accuracy of your inventory accounting.  <\/p>\n\n\n\n

Think of it this way: If it costs you $10 to create a product and you sell it for $15, then you can record a $5 profit. But if you think <\/em>you only spent $9 to manufacture the product, you will record $1 more in profit for that sale than you actually earned.  <\/p>\n\n\n\n

These miscalculations can add up quickly and have devastating consequences for ecommerce businesses. <\/p>\n<\/div><\/section>\n\n\n\n

Audit suppliers\u2019 charges<\/h3><\/div>
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Suppliers frequently overcharge, and it\u2019s difficult to catch it if you aren\u2019t accounting for inventory. Detailed inventory accounting will reveal discrepancies in your books and help you resolve them \u2014 and could even help you cut production costs<\/a> down the line. <\/p>\n<\/div><\/section>\n\n\n\n

Budget better<\/h3><\/div>
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Inventory is often the most valuable asset for ecommerce businesses, and is a central component of your budget. This makes inventory accounting critical to properly gauging the overall financial health of your business and can even be the catalyst to looking into inventory financing<\/a>. <\/p>\n<\/div><\/section>\n\n\n\n

\"A
A woman holds a clipboard and a pen, and stands by a warehouse shelf stocked with inventory, counting the inventory present.<\/figcaption><\/figure>\n\n\n\n

How inventory bookkeeping works for retail and ecommerce businesses <\/h2>\n\n\n\n

There are a lot of day-to-day and period-end procedures involved in maintaining accurate inventory accounting. Let\u2019s look at some of these essential procedures that are needed for ecommerce or retail inventory bookkeeping.  <\/p>\n\n\n\n

Periodic vs. perpetual inventory accounting systems <\/h3><\/div>
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Perpetual inventory accounting systems allow retail and ecommerce businesses to track orders and inventory levels in real time.  <\/p>\n\n\n\n

Perpetual systems: <\/p>\n\n\n\n