Inventory Management & Controls.

Business inventory is the most critical phenomenon which needs close monitoring any mismanagement can result in major business losses. Since overstocking can block your capital funds/investments and under stocking can result in your production hold-ups. 

For successful inventory management, we need to have installed a purchase plan ensuring the continued supply of the raw material and related items to be used in the production, any delay can spoil the production schedules. The objective is to assure that the items are available when needed. Due to the escalating production costs and storage costs, the most common strategy adopted by the company management is JIT ( Just in Time) where a company plan to receive the items when needed. The deliveries are planned according to the sales forecast available with the management. Inventory and reorder levels are maintained and provision for buffer stock is also provided for critical load and items. The objective of these checks and controls is to minimize the cost of production and enhancing the company's profit. Sometimes inventory management gets difficult to control when your business is growing and handling of inventory is increased manifold.  

Various checks and controls are placed to ensure a smooth flow of inventory without any hang-up when making a purchase plan after taking into consideration the below factors. The use of technology makes things easier.   

> Re-Order Level: It is the inventory level at which a company places a new order or starts a new manufacturing run. It is calculated as 

Reorder level = Lead time in Days x Daily average usage.

Lead time means the time it takes the supplier or the manufacturing process to provide the ordered units. 

Daily average usage is the number of units consumed on a daily basis

If a company is holding safety stock, then the reorder level will be 

Reorder level = Lead time in Days x Daily average stock + Safety stock

Safety stock is the stock held by a company in excess of its requirement for Lead time. Safety stock is maintained to protect the risk of stock out. It is calculated as under ;

Safety stock = (Maximum Daily usage -Average Daily usage) x Lead time

> Economic Order Quantity (EOQ): It is the most appropriate quantity a company manages to purchase with the minimum involvement of below costs.

• Ordering cost
• Holding cost 
• Storage cost

By using the above controls the inventory is tracked, received, stored, and shelved in the warehouses and it keeps your business running and orders selling.

What is ERP ?

 

ERP stands for Enterprise Resource Planning. It is software developed to manage and control business flow and activities in real-time. In modern business management, the entire activities involved the following business resources

> Finance Resource Management

> Human Resource Management

> Supply Chain Management

> Customer Relationship Management

> Manufacturing Resource Planning

A modern business enterprise cannot afford any mishandling of the above resources. ERP has been designed to consolidate and gather the business data in one suite in an integrated structure. Software comprising related applications automates business functions such as sales, production, quote management, accounting, and personal data of the employees of an enterprise or an organization.      

In the modern hi-tech era business transaction and activities have increased manifolds and the escalating costs of all the resources have almost made it difficult to survive. The software includes various modules covering financial management, accounting, cost accounting, inventory management, contact management, It also covers that how the business life cycle goes within an enterprise. It mainly manages the central database of a setup and generates analytical reports for the respective departments involved in business activities helping an effective decision making.  

Basic Accounting Concepts

To understand how accounting works we need to assimilate certain concepts forming the basis of all accounting practices all over the world.

Accrual Concept of Accounting: Under this concept, revenue is recognized when earned, and expenses are recorded when occurred irrespective of whether received or paid. This follows the matching principle, expenses and revenue should be recognized under the same accounting period.  The auditor will only certify such financial statements following the same principle.

Conservative Accounting Approach: It requires that all the company accounts be maintained and prepared when there's a reasonable certainty that the revenue and gains will be realized and all probable losses and expenses will be recorded when they are discovered or incurred. This concept tends to draw more conservative financial statements. 

Going Concern Concept: A concern or a company is a going concern when it will continue its operations in the foreseeable future. It will not liquidate or forced to discontinue or stop the operations due to any reason. The financial statements are prepared on the same principle.  

Consistency Concept: It means that all the business transactions and events, once chosen or adopted to record the data must follow the same accounting methods in the following accounting years or periods. Financial statements prepared for multiple periods, under this principle can be comparable and are more reliable. 

Economic Entity Concept: It means the business finances should be maintained separately from the owner, shareholders, partners. By doing so, the intermingling of personal and company transactions can be avoided and personal transactions will not appear in the company's financial statements.

Matching Concept: This concept matches the expenses incurred in one accounting period against the revenue of the same accounting period or we can say the expenses are recognized against the revenue of the same period. There is no deferral of expense recognition under this concept and nothing is reported into a later period. It ensures a viewer of company's financial statements that all the aspect of a transaction has been recorded in the same accounting period.

Matereality Concept: It concerns the relevance of information and the size and nature of the transaction that is reported in the financial statement. The objective is to provide guidance to the accountant to prepare a company's financial statements that will not affect the decision making the shareholder or investor.      

Accounting and Business

Accounting is something relating to the business when strictly talking in a professional sense. Recording of the business transactions, summarizing the recorded data and subsequently reporting it in the form of financial statements covering a stipulated accounting period. Analyzing the reported data to evaluate the business performance also forms part of the accounting process. 

Initially, accounts of an organization were maintained manually and there was no concept of accounting software. The transactions were recorded manually after organizing the data in chronological order involving various types of vouchers with the respective nature of the transaction e.g cash vouchers, bank vouchers, and journal vouchers commonly known as Voucher System. It is a method of cash/bank disbursement by authorizing and approving the payment to the payee and mentioning the account head/title to be charged on it. All the business transactions were controlled and managed to ensure whether all such transactions have been properly checked and approved by the approving authority.    

The rapid development of technology has made a tremendous impact on the prevailing business sector and the data management systems. Most of the performing business organizations switched their business activities to computerized data management and started working in a more efficient manner. This introduced accounting software transforming all the manually operating accounting systems to electronic data processing management.