Question

If I were to open and manage a small boutique, how should I account for the inventory in the store. What method would be best method of inventory valuation to use (FIFO or LIFO) how would it be used to make financial decisions for my company??

Answer 1

Because of tough competition prevailing in the fashion industry, and boutique cannot afford to a poor inventory management system. Change in the trends rapidly, a boutique restates it's quickly restock it's inventory less than losses in order to ensure efficient competition in the industry. A good inventory management system ensures to increase the sales and make the profit as well so reduces the complaints from the clients.

Steps involved in accounting or managing the inventory of a boutique is as follows :

1. Firstly, retrieve the records of your inventory. In case of starting up of a boutique, acquired an inventory book in order to record all the inventory and also changes in it.

2. Secondly, checking of the contents in the package in order to confirm the packaging list for packing the new items.

3. Ensuring that all the items are in the good location and safe in order to make sure that the item quality of the item is maintained.

4. Have a look into the boutique receipts book in order to trace out slow and fast moving items.

5. We should compare individual product Revenues with its original carrying cost of all fast moving items. Also make a note of those products which are giving us the loss. Remove all the loss derived items in order to maintain a profitable portfolio in the existing market.

6. Calculate the periodic requirement of every product in the boutique and also these in your inventory schedule. Also set the date and values for the implementation of this schedule and also enforce them. Make appropriate changes in the schedule depending upon the change in the market conditions.

7. We can also download free inventory software for good and efficient marketing condictionary

8. Make periodic updates in the inventory and correctly determine which product.

9. Follow the concept of inventory days in order to track the quality and market relevance.

Best method for inventory valuation in the boutique istyle as follows:

Accounts small boutique business commonly keeps a low stock in general, so an unexpected boom in the sales could catch up off-guard and waiting for provisions. In case of small business boutiquenterprises, FIFO method needs to be followed because, this method is more realistic and practical compared to LIFO. It is Simple and easy method. This FIFO method is based on the logic of selling those inventories which are purchased first. During inflation, FIFO has the potential to enhance the value of the remaining inventory and bring higher Net income.

How FIFO method helps the company that make financial decisions:

1. Since closing stock comprises of most recent purchases, therefore it is valued at market price.

2. In general, FIFO method tends to manage and show higher profits on which the company can pay tax.

3. In general, if your company is selling most of its inventory during the reporting period, the accounting method shouldn't have a big effect on taxes, because of what purchased is sold during the same period.