Updated July 22, 2015
Controlling inventory in the grocery and convenience store industry Chicago Illinois
Grocery Convenience Store Inventory Control Chicago Illinois
Controlling inventory can be difficult if not impossible. The problem is that it is not just one problem, but many.
At face value, people always think that it should be simple. If you put a dozen cans of coffee on a shelf and sell five of them, there should be seven left. Sure, in a perfect world, you would be correct. But in the real world we have to deal with inventory shrinkage, damaged inventory, and spoilage, just to name a few. Virtual inventories never work as advertised for these specific reasons.
Improper inventory numbers have more far reaching affects than one might think. Let’s say that our inventory is actually $175,000 rather than the $250,000 that we think it is. From the standpoint of accounting for income taxes your net income is probably too high. You would be paying too much in federal and state income tax.
So how do you value an inventory? There are many different ways to value an inventory, but some are quite complicated such as LIFO or FIFO. The most easy and commonly used method is the Lower of Cost or Market Method. Generally, its the lower of either what you paid for the item or what it’s worth. A perfect example would be a can of coffee. Between the cost of transportation and the cost of the item the total is $3. But this item fell on the floor, and the can cracked open Whats it worth now? Zero.
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Chris Amundson is the President of Accounting Solutions Ltd., a full service public accounting firm of Certified Public Accountants and Enrolled Agents handling the bookkeeping, accounting, tax preparation, and audit representation needs of Businesses, Estates, Trusts, and Upper Income Individuals.