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Retail Inventory Management and Inventory Accounting

Retail Inventory Management (RIM) and Inventory Accounting

Retail Inventory-Level Planning consists of retail inventory method (RIM) which is an accounting procedure whose objectives are to maintain a perpetual. It also can book inventory in retail dollars amounts and to maintain records that make it possible to determine the cost value of the inventory at any time without taking a physical inventory. Also known as book inventory system or perpetual book inventory. Retailers also have another important choice to make the stock to sales ratio. The stock to sales ratio is derived directly from the planned inventory to determine monthly additions to stock in the merchandise budget plan.

Retailers generally think of their inventory at retail price levels rather than at cost. Retailers use their initial markups, additional markups, and markdowns, and so forth as percentages of retail. When retailers compare their prices to competitors', they use retail prices. The problem is that when retailers to design their financial plans, evaluate performance, and prepare financial statements, they need to know the cost value of their inventory. Retailers use physical inventories. This process is time consuming and costly. Retailers take physical inventories once or twice a year.

Many retailers use point of sale terminals that keep track of every item sold its original cost, and its final selling price. The rest of the retailers face a problem of not knowing the cost value of their inventory at one time. These retailers with either computerized or manual systems can use retail inventory method.

Their are five advantages for using RIM over a system of inventory at cost. The does not have to "cost" each time. When retailers have many SKUs, keeping track of each item becomes difficult and expensive. It is easier to determine the value of inventory with the retail prices marked on the merchandise than unmarked or at coded cost prices.

The second advantage for using RIM is that it follows the accepted accounting principal of valuing assets at cost or market value, which is lower. This system lowers the value of inventory when markdowns are taken but does not allow inventory's value increase with additional markups.

When using RIM, the amounts and percentages of initial markups, markdowns, and shrinkage can be identified. This information can then be compared with historical records or...

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Category:   Accounting

Length:   7 pages (1,494 words)

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