What is the Importance of Inventory Tracking and Profit-Loss Calculation?

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Why Is It Difficult to Determine the Profit-Loss Cost of a Product?

It is easier to track fixed expenses such as rent, electricity, and labor costs in your business. You can also follow your sales through cash register records or invoices you issue. However, when it comes to the unit cost of sold products, the situation becomes more complicated. This is because the products you purchase for your store are recorded as inventory assets in accounting until they are sold, rather than as direct expenses. That means, when you sell a product, its cost to you becomes evident, and only then is the expense recorded. At this point, inventory tracking is indispensable for accurate cost calculations.

Perpetual Inventory Method

In the perpetual inventory method, the cost of goods sold is recorded immediately whenever a sale occurs. In other words, both the sales revenue and the cost of goods sold are recorded simultaneously. This way, changes in inventory levels and profit-loss situations can be monitored in real time. This method is particularly suitable for businesses that sell high-priced, physically large, and easily countable products like household appliances and furniture. It is preferred in industries where inventory movements are low in volume but significant in value. The main advantage of the perpetual inventory method is that inventory information is always up to date. Information about which products have been sold, how many are left in stock, and the cost of sold products can be tracked in real time.

Periodic Inventory Method

In the periodic inventory method, the cost of goods sold is not recorded during sales transactions. Sales are only recorded as revenue. The cost of goods sold is calculated in bulk at the end of the period, based on a physical stock count. In other words, after a certain period of sales, the remaining stock quantity and cost are measured, and the cost of sold goods is determined. This method is commonly used in places such as supermarkets, pharmacies, and clothing stores, where there is a wide variety of products. It is preferred by businesses where frequent product movements make real-time cost tracking impractical. The key advantage of the periodic inventory method is the simplification of daily transactions. However, because a stock count is mandatory at the end of the period, this process requires time and labor. Additionally, it is not possible to obtain real-time profit-loss or stock information during the period.

Inventory Counting and Declaration Process

It is crucial for businesses to conduct inventory counting at the end of each quarter to ensure the accuracy of financial statements and to prepare the Temporary Tax Return correctly and completely. According to tax regulations, it is mandatory to determine the current state of existing stock at the end of certain periods. Inventory counting provides clear information about the actual asset situation of the business, helping to accurately determine the tax base. At these times, a physical count of the products in your business should be performed, and the quantity and value of the goods on hand should be determined and updated. The results of the inventory count form the basis for the financial data to be declared in the Temporary Tax periods. Moreover, the year-end (December 31) inventory count plays a critical role in preparing the final balance sheet and year-end financial statements.

Key points to consider during the inventory counting process:

• All products must be counted individually and recorded.

• Products that are missing, damaged, or unsellable must be noted separately.

• Inventory valuations must be done in accordance with the Tax Procedure Law.

• The counting results should be aligned with accounting records.

Additionally, it is recommended to conduct weekly or monthly inventory counts, not just at the end of the quarter, to reduce workload and minimize potential errors. Regular counts improve the efficiency of inventory management and allow for much quicker and more accurate controls during quarterly checks. By sharing this information with your accountant on time and completely, you ensure they prepare your declarations with accurate data, significantly reducing the risk of tax penalties and corrective actions.

Contributions of Inventory Tracking to the Business

Inventory tracking not only ensures that costs are calculated correctly for businesses but also plays a critical role in increasing operational efficiency and supporting sustainable growth.

Properly Manages Product Variety: It is important to offer a wide range of products to meet customer demands fully. Inventory tracking helps identify which products are in higher demand and which ones are staying in stock for longer periods, thus optimizing products. This increases sales while avoiding unnecessary product investments.

Prevents Storage Costs Due to Excess Inventory: Excessive inventory creates risks such as additional storage costs, product spoilage, and depreciation. Regular inventory tracking helps prevent overstocking, reducing unnecessary costs and allowing for more efficient use of storage space.

Reduces the Risk of Sales Loss Due to Out-of-Stock Products: Not having a product in stock that a customer wants can lead to sales losses and customer dissatisfaction. Inventory tracking ensures that necessary supplies are ordered before critical stock levels are reached, minimizing this risk.

Optimizes Supply and Shipping Processes: Accurate inventory data facilitates supply chain management. The timing and quantity of products to be ordered can be clearly seen. This speeds up procurement processes, ensures timely shipments, and increases customer satisfaction. For these reasons, it is critical to regularly check the differences between actual stock levels and the recorded inventory in the system. This allows management errors, fraud, or system deficiencies to be detected and corrected in a timely manner.

The Importance of Inventory Tracking Systems and Software

Today, especially for businesses with a wide variety of products or high sales volumes, manually tracking inventory is a significant waste of time and a source of errors. This not only reduces operational efficiency but also increases costs. For this reason, many businesses prefer modern inventory tracking software.

Real-Time Inventory Updates: Product entries and exits are recorded in the system in real time. This ensures that inventory levels are always up to date, making it easier to access accurate data.

Online Product Movement Tracking: Sales point (POS) systems and warehouse management integrations allow for real-time tracking of inventory movements. This feature is crucial for businesses with multiple branches or warehouses.

Reducing the Risk of Excess or Insufficient Inventory: The system provides alerts based on the minimum and maximum stock levels set, allowing businesses to take preventive measures before excess or insufficient stock occurs.

Synchronization of All Sales and Inventory: Sales systems and inventory tracking software work in integration. This means that every sale instantly reduces inventory and records are updated synchronously.

Automated Reporting and Sales Forecasting: The software analyzes past sales data and creates sales forecasts. This allows businesses to plan which products will be in higher demand at which times. Accurate inventory management is crucial for businesses operating in e-commerce. Running out of stock on online sales platforms can lead to order cancellations and damage to brand reputation. Therefore, real-time monitoring of stock levels and automatic alerts to managers when needed provide a significant advantage. In this regard, inventory tracking modules within accounting programs offer an important solution. These modules enable small businesses to easily manage their inventory and gain professionalism in sales and procurement processes.

Conclusion

Inventory tracking and accurate profit-loss calculations are not only a financial requirement for businesses of all sizes but also foundational elements for achieving sustainable success. Correctly determining the cost of products, efficiently managing sales processes, and maintaining constant control over inventory levels increase operational efficiency and reduce financial risks. Choosing the most suitable method between perpetual or periodic inventory, conducting regular stock counts, and digitizing processes using technological software provide a competitive advantage. Strong inventory management not only supports current operations but also aids in future growth objectives. Therefore, it is critical for every business to prioritize inventory tracking and adopt a profit and customer satisfaction-focused management approach.