Merchandise Inventory Guide for Ecommerce Entrepreneurs 2023

The benefit to the customer is that they do not expend capital until it becomes profitable to them. This means they only purchase it when the end user purchases it from them or until they annual report pursuant to section 13 and 15d consume the inventory for their operations. Trends indicate a move toward real-time analytics, AI-powered systems, and and increased use of mobile technology. Considering the cost savings and increased efficiencies displayed by our case studies, it is likely that more companies will continue to adopt advanced inventory systems.

Try Shopify for free, and explore all the tools you need to start, run, and grow your business. Read more about what is a B2B company to get a better understanding of a B2B business. At the start of April, Lunar Tech & Gadgets had an inventory valued at $100,000.

Merchandise on hand is the cost of goods on hand and available for sale at any given moment. It does not include the cost of goods that are in transit or inventory shrinkage. However, it does include finished goods inventory, any inventory in your warehousing, goods held on consignment, and safety stock. It also includes the price that was paid for the goods, all shipping costs that retailers or resellers paid, eCommerce packaging expenses, and transit insurance.

One way to understand your merchandise inventory figure is in terms of its relationship to your cost of goods sold (COGS). COGS represents the total cost to your business of all products sold by your company during a particular reporting period. Merchandise inventory is a snapshot of the cost of these after you’ve purchased them from a supplier but before you’ve sold them to a consumer. Merchandise inventory is any kind of product that a company has on hand that is intended for sale. The term merchandise inventory includes the value of goods, including raw materials or finished goods, that are ready to be sold to customers. When merchandise inventory is purchased with the intention to sell, it is always considered a current asset.

Compliance with Accounting and Tax Laws

However, inventory items are the end product that a business is selling to their customers. There are many examples of merchandise inventory, including shoes, books, headphones, food products, and auto parts. Remember, merchandise inventory is just one of many differences between B2B vs. B2C businesses. Manufacturing inventory, MRO inventory, and raw materials inventory are not considered merchandise inventory. Understand what is inventory to get a better idea of what is considered. This method can be beneficial in inflationary times because it results in higher cost of goods sold and lower profits, hence lower taxes.

Steps to Calculate Merchandise Inventory

Merchandising inventory is considered a “current asset” in the balance sheet that shows the current value of sellable inventory. Hopefully as you grow your business, you will see your order volume increase. But this can make it more difficult to track inventory in real time, accurately forecast demand, and optimize storage. Utilizing AI and ML in inventory management can help offer a better understanding of how various factors influence demand. It enables retailers to forecast inventory requirements with higher accuracy, optimize stock levels, and enhance customer satisfaction, thus increasing profits.

1. Growing an online business requires your attention to focus on revenue-driving initiatives, making it hard to oversee logistics operations.
2. The supplier could be a manufacturer and the wholesaler could be a distributor or retailer, depending on the specific situation.
3. Inventory accounting can be a stressful business process to manage, which is why it’s important to consult with a CPA as you grow your business.
4. Also called stock turnover, this is a metric that measures how much of a company’s inventory is sold, replaced, or used and how often.
5. Zara’s merchandise is an example of inventory in the finished product stage.

Mastering Merchandising Inventory for Your Business

Inventory refers to a company’s goods and products that are ready to sell, along with the raw materials that are used to produce them. Inventory can be categorized in three different ways, including raw materials, work-in-progress, and finished goods. Consumer demand is a key indicator that can determine whether inventory levels will turn over at a quick pace or if they won’t move at all.

Having a proficient accountant or a knowledgeable tax advisor is beneficial in navigating these complexities. Merchandising inventory includes sourcing materials from suppliers, and ethical sourcing has become a crucial consideration in recent years. Companies are expected to make sure that their supply chain is free from labor rights abuses, environmentally harmful practices, and corruption. Implementing an eCommerce platform also enables businesses to offer free product tours, giving potential customers a detailed look into the products they’re interested in purchasing.

Higher demand typically means that a company’s products and services will move from the shelves into consumers’ hands quickly, while weak demand often leads to a slow turnover rate. It’s always a good idea for companies to invest in a good inventory management system. This is especially true for larger businesses with multiple sales channels and storage facilities. These systems are able to identify waste, low turnover, and fraud/robbery.

ShipBob is a best-in-class 3PL that offers a tech-enabled logistics network. With ShipBob, you can outsource fulfillment and still have full visibility into operations with access to built-in inventory management tools. But whatever method you choose, you must follow that method consistently to ensure accuracy when it’s time to report inventory.

Learn how to fully manage your merchandise inventory, how to calculate your inventory value, and how a partnering with a tech-enabled 3PL like ShipBob can help. Methods to value the bearer bonds meaning inventory include last-in, first-out, first-in, first-out, and the weighted average method. For instance, a company runs the risk of market share erosion and losing profit from potential sales. The benefit to the supplier is that their product is promoted by the customer and readily accessible to end users.

What does merchandise inventory include?

The perpetual merchandising inventory method uses software tools to monitor a company’s inventory levels in real time. Business owners can use inventory management software to keep track of inventory purchases, individual sales, and even returns. Although the perpetual inventory system requires more ongoing maintenance than the periodic method, it also allows business owners to know how much inventory they own at any given point. This in turn can help ensure they don’t run out of products and improve forecasting for future orders.