Running an ecommerce business in Toronto or Ontario can be a fulfilling venture. However, it requires careful attention to details and proper accounting to ensure its success. One crucial aspect of ecommerce accounting is inventory tracking. This involves keeping an accurate record of the products you have in stock, how much you paid for them, and their current value.
Why is inventory tracking important in ecommerce accounting? Let’s find out.
- Accurate Cost of Goods Sold (COGS) Calculation
COGS is the cost of the products you sell, including any direct costs incurred in getting them ready for sale, such as shipping and handling. To calculate your COGS accurately, you need to know the cost of each item in your inventory. If you don’t have an accurate inventory count, you may end up overstating or understating your COGS, which can lead to inaccurate financial reports and affect your decision-making.
- Better Cash Flow Management
When you track your inventory, you can make better purchasing decisions and avoid overstocking or understocking products. This way, you can optimize your inventory and ensure that you have the right products in stock to meet your customers’ demands. As a result, you can better manage your cash flow and avoid tying up your money in excess inventory or running out of stock when you need it the most.
- Improved Sales Forecasting
Inventory tracking allows you to analyze your sales trends and forecast demand accurately. This way, you can plan your inventory levels and adjust your marketing strategies accordingly. Accurate sales forecasting can help you avoid stockouts or overstocking, leading to better customer satisfaction and increased sales.
- Easy Tax Preparation
In Canada, businesses are required to report the value of their inventory on their tax returns. By tracking your inventory, you can easily determine the value of your stock at the beginning and end of the year, making tax preparation less complicated and time-consuming.
In conclusion, inventory tracking is a crucial aspect of ecommerce accounting that should not be overlooked. It can help you make informed decisions, optimize your cash flow, and stay compliant with tax regulations. So, invest in a reliable inventory management system and ensure that you keep an accurate record of your products to achieve business success.