Inventory is one of the major concerns of a small business.

Having what your customers need when they need it matters. Maintaining control of your inventory can be a challenge, however, as even in the most efficient of operations items tend to get lost or stolen. Assets in inventory are an important part of financial reporting as well. Internal controls are essential procedures for managing inventory and accounting for revenue and expenses.

The most basic step in inventory control is maintaining a catalog of exactly what a business has and where it is. Most businesses today rely on electronic inventories of some sort, often using bar-codes and RFID tags to keep close track of items. All inventory locations should be numbered and inventory items identified with those numbers. Tracking systems should be in place. The reason that most businesses keep their inventory in a central location is that this allows them to also keep it secure.

Added measures such as locks and security codes can help ensure that only certain trusted personnel have access to inventory. All deliveries from suppliers require a count before they go into inventory so that discrepancies between deliveries and purchase orders are immediately remedied. Periodic counts of small sections of inventory are conducted to pick up any discrepancies.

Its important that a company maintain an up-to-date inventory. If supplies and items are allowed to sit on shelves for too long they will lose value. It is better to sell some items at a loss than allow them to sit any longer in inventory. The storage space that is wasted on out-of-date inventory is a loss in profits for a small business that could instead be using that space for a faster selling product.

Periodic audits of bills of materials, negative balances in inventory and scrap tracking will offset inventory location errors, misallocation of raw materials, overpurchasing and overstatements of materials in inventory.

For example, if materials are taken from one warehouse, but mistakenly recorded as taken from a second, the second warehouse may show a negative inventory balance, triggering automatic overpurchasing, when in fact the materials are still in the second location.

Casey Reader started writing freelance in His work appears on eHow, focusing on topics in history and culture.

Aside from freelance work, Reader is actively pursuing a career in creative writing. He graduated from Centenary College of Louisiana with a Bachelor of the Arts in history and English literature.

Checklist for Internal Inventory Controls | Your Business

Skip to main content. Tracking The most basic step in inventory control is maintaining a catalog of exactly what a business has and where it is. Security The reason that most businesses keep their inventory in a central location is that this allows them to also keep it secure.

Review Its important that a company maintain an up-to-date inventory. Audits Periodic audits of bills of materials, negative balances in inventory and scrap tracking will offset inventory location errors, misallocation of raw materials, overpurchasing and overstatements of materials in inventory. References 6 Accounting Tools: Inventory Internal Controls; CNN Money: Accounting Tools for a Growing Business; Fahmida Rashid; September 21, Cornell University: Assortment Planning and Inventory Decisions Under Stock-Out Based Substitution; Dorothee Honhon, et al.

Inventory Planning Systems -- Negative Inventory. About the Author Casey Reader started writing freelance in Suggest an Article Correction. More Articles The Importance of Having Good Internal Controls In Place for Inventory What Types of Internal Controls Are Used in Clothing Stores? Also Viewed Examples of Internal Controls Checklist for a Physical Inventory Audit What Is the Purpose of Internal Controls of a Company?

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Internal Controls

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