How to Keep Your Ecommerce Inventory Accurate

Now that the year is officially halfway over, it’s time for a true up. Maintaining accurate inventory records is essential for assessing profitability and ensuring your financial statements are correct.  

A quarterly inventory true up can help you achieve this by reconciling the physical count of inventory with your books. Here’s a a quick guide to get your quarterly inventory true up started.  

Conduct a Physical Count 

Begin with a thorough physical count of your inventory. This involves systematically counting all items in your inventory to detect any discrepancies that may arise from theft, damage, or loss. Ensure this count is as accurate as possible by organizing and categorizing items beforehand. 

Reconcile Inventory Values 

Once the physical count is completed, compare the counted inventory with the values recorded in your Inventory Account on the Balance Sheet. This process helps identify any variances between your physical inventory and accounting records. Adjust your books accordingly to reflect the true value of your on-hand inventory. 

Adjust for Prepaid and In-Transit Items 

Include any prepaid inventory and items currently in transit in your calculations. These items can impact your financials significantly if not accounted for properly. Ensure that they are added to your inventory count and reflected in your financial statements. 

Update Financial Statements 

After reconciling and adjusting your inventory values, update your financial statements to reflect these changes. Accurate inventory records ensure that your cost of goods sold (COGS) is correct, which directly affects your profitability calculations. 

Implement Regular Reviews 

To maintain accurate inventory records, establish a routine for conducting regular reviews. Quarterly true ups are a great start, but consider monthly reviews for more dynamic inventory management. Regular reviews help catch discrepancies early and keep your inventory data reliable. 

Benefits of Quarterly Inventory True Ups 

• Accurate Financial Statements: Ensures your Balance Sheet and Profit & Loss statements reflect true values. 

• Informed Decision-Making: Provides reliable data for strategic decisions, such as pricing, purchasing, and budgeting. 

• Enhanced Profitability: Helps identify issues such as overstocking or stockouts, optimizing your inventory levels and improving profitability. 

• Regulatory Compliance: Maintains accurate records required for audits and compliance with accounting standards. 

Key Takeaways 

A quarterly inventory true up is a vital practice for any business dealing with inventory. It ensures your financial records are accurate, enabling better decision-making and enhanced profitability. By regularly conducting physical counts, reconciling values, and adjusting for prepaid and in-transit items, you can maintain a clear picture of your inventory and overall financial health. 

For a comprehensive guide on managing inventory effectively, check out our free Inventory Basics—What Every Ecommerce Seller Needs to Know ebook. 

Interested in Profit First? 

If your ecommerce business isn’t where you’d like it to be in terms of profitability, check out my book, Profit First for Ecommerce Sellers. It answers important questions about how to implement Profit First in an ecommerce business. Take control of your money and your business, and put Profit First to work for you!  

You can also sign up for the Profit First for Ecommerce Sellers Online Course. As a Mastery Level, Certified Profit First Professional, I will teach you why Profit First works so well for ecommerce businesses and the particular challenges for businesses that have physical products requiring inventory management. You will learn how your behavior drives your money management habits for your business and how you can set up your business bank accounts to work with your habits. 

Check out all our ecommerce accounting and profit advising services here!