Most teams check their stock, but they may not think about how those numbers affect their reports. When we look at inventory from an accounting perspective, we make sure what’s on the shelf matches what’s in the books.
If your list shows items you no longer have or misses what is gone, your reports will be wrong. That can lead to problems with taxes, audits, or day-to-day decisions.
Why Inventory Matters in Accounting
Inventory is often the largest asset on your balance sheet. It represents real money tied up in goods that you plan to sell. If that number is wrong, your balance sheet is wrong too. This can affect:
- Your gross margin
- Your cost of goods sold
- Your net income
- The valuation of your business
Even small mistakes can have big consequences. If you carry inventory that’s damaged, expired, or missing, but still record it as valuable, you’re overstating the health of your company.
Key Takeaway: Your financials are only as good as your last inventory count. Without accuracy, your numbers lose meaning.
Need expert help with your next inventory count? Contact Monarch for a free consultation. We’ve helped clients find major gaps in their numbers, uncover outdated systems, and rebuild processes that keep inventory and accounting aligned.
Common Risks of Inaccurate Inventory
What happens if you overvalue your inventory?
Overvalued inventory can lead to:
- Compliance issues with auditors
- Loss of trust from banks or investors
- Mistakes in pricing or purchasing
- Incorrect business decisions
We’ve seen companies think they had thousands more in inventory than they actually did. When we perform a physical inventory and find big gaps, it often uncovers outdated procedures or a lack of regular checks.
What can throw off your inventory numbers?
Here are a few common reasons:
- No regular inventory schedule
- Old processes that don’t match current operations
- No checks for expired, damaged, or missing items
- Lack of coordination between the warehouse and accounting
When these issues build up, your books stop matching reality. And accounting is supposed to reflect the truth about your business.
Inventory From an Accounting Perspective: What to Watch For
If you plan to sell your business, wrong inventory numbers can cause big problems. Buyers need to see numbers they can trust. For example, if you claim to have $200,000 in inventory but really only have $150,000, that $50,000 gap can ruin the deal. No one wants to pay for things that don’t exist.
Even if you’re not selling, inventory still matters. Banks and investors look at your inventory to decide how much your business is worth. If the numbers are wrong, they may choose not to invest or give you a loan. They need to know that your records match what’s really in your warehouse.
Pro Tip: If it’s been over a year since your last full inventory, there’s a high chance your books are off. Schedule one now to protect your business.
Make Inventory an Accounting Priority
Some teams think inventory is only a warehouse issue. But inventory, from an accounting perspective, is about knowing what you own and proving it on paper. If your inventory isn’t tracked properly, your business is at risk from audits, from lost trust, and from poor decisions.
We’ve worked with many companies that didn’t know how far off their numbers were until we came in and counted. That’s when problems become clear. But the good news is, once you fix it, you’re back on solid ground.
Get ahead of the problem. Let us help you take control of your inventory and protect your finances. Contact Monarch today to schedule your inventory check.
