The retail sector is perhaps the most visible industry to the typical person on the street – convenience stores, gas stations, the corner liquor and tobacco store or multi-storied shopping centers. However, most general retail stores have one thing in common, and that is a large number of different products that have to be stocked for the successful running of a business. Hence, keeping track of each item is not easy.
Apart from this, retail and convenience stores are subjected to seasonal rise and fall in business and traffic to the stores, and this leads to its own peculiar set of problems. For instance, levels of inventories and workforce requirements have to be so planned to take into account all cyclic fluctuations.
Given this nature of the business, accounting processes in the retail sector to differ from other industries. While the basics of accounting are universal across the board to all companies, bookkeeping per se will be different for various areas. Hence, accounting for retail store will not be the same for restaurants or hospitals as the fundamentals of these businesses vary with each other. It is for this reason that owners in the retail sector have to be especially aware of the principles of accounting that is relevant to their establishment.
Here are some factors that make accounting for retail businesses unique in its way.
1. Inventory Management
This is the primary differentiating factor in accounting between the retail industry and others. As an owner of a retail establishment, you have to have adequate stocks to avoid empty shelves. On the other hand, having more than necessary inventory means that your funds will be tied up in idle products, leading to a crunch in working capital requirements. Hence, inventory management is a crucial part of an excellent retail accounting process.
To monitor large volumes of various products, retail establishments today have computerized inventory management through bar-codes. Products are automatically entered into the system after purchase and removed when sold, making the job of inventory control that much more manageable.
For accountants in the retail sector, the task is not merely to keep track of the cost of the items sold but also to monitor the value of inventory left on a particular cut-off date – the last day of the month or the time of finalization of the balance sheet for instance. There are several methods to calculate the cost of inventories.
- LIFO – This means “last in, first out” that is, the most recent addition to the inventory is assumed to have been sold first. It is usually for items that are not perishable.
- FIFO – This is “first in, first out” and means that the items first added to the inventory have been sold first. In short, the value of the inventory left over at the end of the year is the latest additions to the stock regarding value. This process is for perishable items with specific expiration dates.
- Weighted average – For arriving at the value of inventory in this method, the cost of each item on the inventory has to be multiplied by the number of units in stock of each and all the sub-totals have to be added up. This can be a long drawn process for large retail stores.
You can also use a digital system to monitor your inventory levels where every in and out is tracked continuously. Provided there is no theft or damage to items in inventory; its value should be accurate at all times.
2. Sales Tax Reporting
Most States in the US levy a tax on retail sales, California being one such example. Laws also stipulate that the money so collected should be remitted to Government coffers immediately. In retail accounting, therefore, all taxes on sales have to be recorded as payable. Retail accountants can, therefore, know the total of taxes to be paid at any given time from “tax payable.” In other industries, it is recorded as revenues to be reversed at tax times.
3. Payroll Processing
Payroll processing can be a complicated activity for the retail sector. There will be permanent employees as well as temporary staff recruited during busy and festive seasons. Salaries payable will therefore not be standardized, and changes will be inherent every month. Added to it is the complicated tax computing task every year where business and individual tax for both permanent and temporary employees have to be calculated and returns filed.
4. Report Generation
What makes accounting for the retail sector unique is the quantum of data that needs to be processed for generating every report, whether it is in manual or computerized mode. Retail owners should get reports on expenses, cost of goods sold, sales volumes, inventory balance and receivables and payables. Then there should be an aging schedule for receivables so that long outstanding dues can be followed up. All this is a complicated accounting task, as there are a large number of variables to be considered.
These reports are crucial as many retail management decisions are based on them. You have to track fast selling items and order more of them and slowly eliminate products that have no buyers and are unnecessarily occupying shelf space. Again, if you find that a customer owes you a lot of money, you have to curtail further credit. Such reports are crucial to increase operational efficiencies of retail stores.
5. Dedicated Software
Retail sectors have to install retail accounting software that is specific to their business. The needs of say, a bookstore will be different from a grocery store or a gas station. By installing retail POS software unique to your retail store, you get more out of the software along with all functions required to optimize running of your business. You can get a general retail accounting software and then customize it as per your requirement.
These are some of the factors that make retail accounting unique in its way, entirely different from other industries.
In the competive retail landscape, every retail store needs a fast and reliable POS solution that can help manage and grow your business. To learn more about Harbortouch’s products and services, visit https://www.harbortouchpossoftware.com/pos-systems.