Accounting Best Practices, Fifth Edition

Total Impact of Best Practices on the Inventory Function

The impact of the best practices described in this chapter on the inventory function is a considerable increase in the accuracy and speed of inventory information, as well as a reduced investment in inventory. They are not designed to directly improve the functions of the warehouse, since this book only deals with accounting improvements. Nonetheless, it would be surprising if the warehouse personnel were not to experience a much easier existence if they had certain knowledge of the exact quantities and locations of all parts. As for the accounting staff, improved inventory accuracy leads to much less concern about the accuracy of the inventory and cost-of-goods-sold figures noted in the balance sheet and income statement, respectively. Further, the purchasing staff have a much easier time ordering parts, since they have much better knowledge of the accuracy of the on-hand inventory balances and no longer need to make a trip to the warehouse to verify this information. Finally, the production department will no longer experience parts shortages due to inaccurate inventory balances, resulting in the timely completion of more production runs. Thus, the best practices shown graphically in Exhibit 16.2 are unique among the best practices listed in this book in that their beneficial impact spreads far beyond the accounting department.

Exhibit 16.2. Impact of Best Practices on the Inventory Function

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