Accounting for Retail Business
Accounting for retail business needs an understanding of accounting concepts and principles. It is also a time-consuming task, and many owners hate it. On the other hand, hiring an accountant can solve their problem.
However, a permanent accountant is expensive in terms of salary, benefits, statutory contributions, etc. It also requires infrastructure, software, office space expenses, etc. It is why owners prefer to hire affordable accounting services.
What about those owners who cannot afford to appoint these services? If you are one such owner, here are the accounting tasks that you can perform on your own for your newly started retail business.
Accounting for Retail Business
Accounting for retail business is not like that for other ordinary companies. It is lengthy. You must keep detailed records of each of its financial transactions. You may also need to track its inventory to maintain optimum stock levels to keep on fulfilling the customer demand.
Inventory management is an inseparable part of the retail business. You have to master it anyhow. The first step in this direction is to implement an inventory costing technique suitable for your business and product line. Here are your options which will ease your accounting for retail business:
Retail Inventory Techniques
Retail Method
You need to use the retail method to put a value to physical stock in your retail business' inventory. Doing so enables you to set the corresponding prices for the items you offer. With this method, you get a reliable inventory valuation as it does not consider items lost due to breakage or stealing. However, the drawback of this method is that you need to conduct a physical inventory of your stock.
First In, First Out (FIFO) Method
The FIFO method is a technique for inventory management and valuation in which stock bought first is sold or disposed of first. For tax purposes, under FIFO, a stock with the oldest costs is included in the costs of goods sold. In an inflationary market, using the FIFO method for the valuation of inventory shows a higher net income.
Last In, First Out (LIFO) Method
The LIFO method is used to account for the stock in inventory. It assumes that the last items purchased are sold or disposed of first, and their costs are expensed first. When the prices are rising, the LIFO method gives low net income and tax-wise, it is a benefit.
Tracking Stocks in Inventory
Tracking the inventory costs is tricky and hard. On the other hand, tracking stock in inventory is easy. This data is important for accounting for your retail business. It gives an accurate valuation of stock, and it can also be used for predictions.
Maintaining up-to-date inventory records will also ease your tax preparation. You need to use the latest inventory management software to automate the task.
Point-of-sale (POS) software can ease your tracking of the stocks in your inventory. And you will get to know the items at hand at the end of each sale.
For your offline retail business, you need to scan the item's barcode that you are selling, and your POS software will automatically update your inventory record.
Accounting Cycle of a Retail Business
After choosing the inventory costing method and implementing inventory software, you need to take care of your accounting cycle. To do so, you need to work at recording transactions, preparing financial statements, and reconciliation of transactions.
Update Transaction Records
If you want to experience a tax season without stress, you have to work every day. You need to meticulously record all the earnings and expenses of your retail business. Do it promptly using accounting software before you forget small-ticket sales. The software will streamline your accounting tasks, like updating books, preparing various reports, and reconciling accounts.
Financial Reports
When you have updated transaction information, it is easy to generate financial statements like balance sheets, income, and cash flow statements. Both these documents contain critical information, and you can analyse them for financial insights for data-driven business decision-making. You can also prepare management reports.
Reconciliation of Transactions
In the last stage of the accounting cycle, you must work on balancing the books of your retail business. Experts advise you to do it at the end of each month. Monthly closing gives you a chance to reconcile your records with the bank statement. If they are not matching, update your records in the general ledger.
Yes, accounting for retail business is a resource-intensive task. However, give it a try. If it does not work, hire an affordable accounting services provider to do it for you.