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What Is the Connection between Sales and Inventory Management?

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  • Written By: A. Preble
  • Edited By: Angela B.
  • Last Modified Date: 03 November 2016
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The relationship between sales and inventory management is important because a business owner can only know what inventory he has if he knows what he's purchased and what he's sold. Proper recording of sales lets the business owner know when he's running low on an item in his inventory, whether he should restock the item and, if so, how much to purchase. Proper recordkeeping each time a sale is made can ease this process. It also can help the business owner keep track of his profitability and make decisions about the future of the business.

Back-end inventory management involves accounting for purchases of raw materials that will eventually be turned into goods for sale, and items purchased for immediate resale. Raw materials are transferred into an intermediate work-in-progress account while being used for manufacture. Then, items are transferred into the finished goods category and sold. Pre-fabricated items are immediately placed into the appropriate inventory account after being received and checked in. From here, sales and inventory management are handled simultaneously as income is recorded and the item is removed from finished goods.

When a sales associate records a transaction, inventory balances are once again adjusted. The only other circumstances in which a product is removed from inventory at the point of sale are damage or theft. To properly allocate income and loss, the connection between sales and inventory management must be strong, and associates must adhere to any inventory requirements regarding sales, damages and theft.

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There is only one chance for a company — especially a large one with many items for sale — to record point-of-sale (POS) transactions and adjust inventory levels. Associates can't be expected to remember each transaction, so a reliable system is essential. Most POS systems are integrated with an inventory tracking system, and bar codes ensure each product is properly accounted for. As long as each item gets properly scanned or recorded, inventory levels will be accurately maintained. Damaged items must be manually removed from inventory, as must items lost through known theft.

Though there are other ways of adjusting inventory post-sale, the best method is to create an easy-to-follow POS procedure and to foster a strong understanding between sales associates and inventory management associates. While a separation of duties is important for maintaining a checks-and-balances system, each department must understand all related procedures at a basic level, if not higher. Both sales and inventory management departments need to work together to ensure that items are being properly accounted for. Inaccurate sales figures and inventory levels can lead to inflated earnings statements and can ultimately affect the company's health and longevity.

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