Accounting for the Retail Industry

 As a business owner, you want to run your company as efficiently as possible. This requires enlisting the help of qualified individuals to assist with accounting duties. However, depending on the state of your retail store's revenues, hiring staff may not be feasible. The good news is that you can handle a variety of accounting chores alone.

Let's take a look at the chores you may complete on your own and the best methods for doing so.

 

What sets retail accounting apart from traditional business accounting?

 

It's critical to understand the difference between ordinary accounting and retail accounting before moving on to the retail accounting procedure.

 

Both retail stores and other types of businesses must keep extensive financial records, to be honest. In contrast, a retail business must deal with an inventory. Other companies, such as a law practice, do not have to keep track of inventory or inventory levels.

 

In retail accounting, there are three methods for accounting for inventory expenditures.

 

Because inventory is such an important part of the retail industry, it's critical to choose an inventory costing method that's right for your business and the items you offer. There are three main approaches to inventory management and cost estimation:

 

The retail technique is the most common.
The first in, the first-out rule applies (FIFO)
Last one in, last one out (LIFO)

 

Using the Retail Method
The retail inventory methodology is a conventional retail accounting method for determining the value of your retail store's inventory. The retail inventory strategy may be thought of as a relationship between inventory costs and retail prices.

 

This technique of inventory pricing should only be used to estimate the value of your inventory because it does not account for broken or stolen products. If you're going to use this method, you should also do a physical inventory as a quality assurance check.

 

The FIFO (first-in, first-out) approach

First-in, first-out (FIFO) is a cost-flow-based approach for estimating ending inventory costs. The first-in, first-out (FIFO) method assumes that inventory acquisition costs will be recorded first. The value of your whole inventory will decrease if you utilize this strategy.

 

Last one in, first one out (LIFO)

 

LIFO is the polar opposite of FIFO. The LIFO method considers the most recent purchases to be the first to be sold. As a result, the most recent purchase price determines the cost of sales.

What's the best way to keep track of your inventory?

Unlike inventory expenses, keeping track of goods on hand is fairly straightforward. It's all about keeping track of how much inventory you have on hand at any one time. This data is essential for retail accounting since it gives exact cost and forecasting information.

 

Maintaining accurate inventory records can also save you time when it comes to filing your taxes.

 

Manual vs. automated inventory tracking

The perpetual technique is the best way to track inventory in stock unless you prefer to compute inventory manually. You can keep track of the items you sell as they change using a fully integrated point-of-sale (POS) system.

 

If you sell online using PayPal, Stripe, or Square, you may not need a separate POS. Instead, you might use a sophisticated auto-tracker to record all changes into your accounting software instantly after a sale.

 

You'll need a POS system that allocates a barcode to each item if you sell offline. The numbers in your inventory will instantaneously alter when you sell an item and scan its barcode.

 

How does a retail firm's accounting cycle work?

 

It's time to start on fine-tuning the accounting cycle once you've settled on an inventory costing approach and built a sensible system for inventory monitoring. The following milestones are included in the retail accounting cycle:

 

Keeping Track of Transactions

 

As professional accountants like to say, tax season never ends. Documenting all income and spending transactions throughout the year is the key to a stress-free tax season.

 

Reconciliation of Transactions

The final element of a retail store's accounting cycle is balancing the books. This step is usually conducted on a monthly basis and assists in the reconciliation of your records with the real amount on your company's accounts. Make any required changes and record them in your general ledger if any discrepancies, errors, or illegal expenditures are detected during reconciliation.