What is Inventory?
For effective business management and the development of the right strategy, it is essential to understand what assets an organization owns. These assets include both fixed assets and commodity material inventory.
A fixed asset is a type of asset that a company uses for its operations — for example: chairs, desks, IT equipment, air conditioners, etc. Commodity material inventory, on the other hand, refers to assets that serve as a source of income for the company.
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The Importance of Inventory
For any business, inventorying these two types of assets — fixed assets and material stock — and understanding the actual balance is of critical importance. Proper accounting of fixed assets is directly linked to the accurate calculation and payment of property taxes, as well as monitoring the condition of each asset and identifying the employee responsible for it within the system.
Fixed asset tracking is also particularly important for organizations with multiple branches. According to accounting standards, it is recommended that such assets be categorized by location, and by the employees or departments responsible for them at each location.
Inventory of Goods and Materials
When it comes to commodity material stock, accurate accounting is critically important for any organization, as each item lost or missing directly translates into a financial loss for the business.
Therefore, inventory should not be conducted by the employees responsible for the stock themselves, but rather by a third-party, independent organization. This ensures that the final inventory report is free from conflicts of interest, and is prepared by a neutral, reliable, and competent entity.
Law on Inventory
According to Order N996 of the Minister of Finance of Georgia of December 31, 2010 on Tax Administration, starting from 2023 the accurate description and declaration of inventory balances and fixed assets has become mandatory. As a result, submission of the profit tax declaration is not possible without completing inventory balance sections.
Why is inventory necessary
For any category of business, the form in which inventory is conducted may be selected based on different principles.
During the inventory of fixed assets, it is important to understand what assets the organization owns, what condition they are in, what remaining service life they have, and what expenses need to be considered to ensure the uninterrupted operation of the organization.
Addressing the above-mentioned issues, ensuring the reliability of the organization’s accounting records, and providing accurate managerial reporting requires the inventory of fixed assets.
Services include:
- Inspection of the site
- Counting of fixed assets
- Tagging of fixed assets
- Photographing of fixed assets
- Categorization by branches
- Preparation of a file based on the final results of the inventory
- Matching of fixed assets based on the final inventory file
- Allocation of fixed assets in the file according to individual site
- Assigning inventory responsibilities to relevant personnel
- Preparation of the inventory order
- Preparation of the fixed asset inventory act
- Preparation of the inventory report (protocol)
Review and Confirmation of the fixed asset’s additional characteristics
- Name
- Inventory number
- Year of manufacture
- Year of acquisition and commissioning
- Location
- Model, type
- Capacity, size, quantity, weight
- Factory serial number
- Other relevant parameters depending on the type of fixed asset
For companies that trade in commodity-material reserves, it is important to carry out accounting in accordance with international standards. Both imports and local purchases must be managed by comparing documentation with the actual stock on hand.
In the retail sector, shortages are common, and often the reasons remain unclear. In such cases, it is recommended to first conduct a general (initial) inventory, followed by periodic test inventories to monitor stock levels.
Content of Inventory Accounting for Goods and Materials
- Inspection of the site
- Assessment of the layout of commodity-material stocks
- Conducting a general inventory of commodity-material stocks
- Performing test controls of commodity-material stocks
- Monitoring of personnel responsible for the inventory
- Identification of surpluses and shortages based on the final inventory results
- Preparation of the inventory report form
How to Conduct an Inventory
Before conducting an inventory, it is essential to define its purpose. Once the reason for the inventory is identified, a site visit is planned, and the inventory team begins the assessment. At the same time, we request the following information from the accounting and administrative departments:
- Software-based balances of fixed assets
- Software-based balances of commodity-material stocks
- Number and addresses of locations
- Number and contact details of individuals responsible for inventory on behalf of the organization
Once this information is provided, we begin the inventory process, which includes the following steps:
- Inventory of fixed assets
- Inventory of commodity-material stocks
- Tagging of assets
- Photographing of assets
- Categorization of assets by location
- Assigning IT equipment to responsible individuals
- Formation of groups and subgroups
- Comparison of actual vs. recorded (software-based) balances
- Preparation of the inventory report (act)
- Preparation of the final report based on the results
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Inventory Conducting Procedure
The procedure for conducting an inventory differs for each business segment. Before conducting an inventory, the organization must determine the following aspects:
- Purpose of the inventory
- Frequency of the inventory
- Recommended timeframes for conducting the inventory
- General inventory rules
- Responsibilities of the inventory commission
- Obligations of the inventory commission
- Procedures for verifying actual stock
- Inventory of fixed assets
- Inventory of material supplies
- Inventory of cultivated assets
- Inventory of financial assets
- Inventory of financial claims and liabilities
- Preparation of inventory comparison reports
- Procedure for addressing discrepancies found during inventory and finalizing the results
Recommended Period for Conducting Inventory
If the organization is conducting an inventory of only fixed assets, Inventer recommends inventory to be carried out once a year. The specific timing depends on the nature of the business. For example, if the organization is an educational institution, a hospitality business (HoReCa), or any other type of seasonal business, the period should be selected based on its off-peak times.
- For schools, universities, kindergartens, and similar educational institutions, the inventory should be conducted during holiday or vacation periods.
- For hospitality businesses (such as hotels or restaurants), inventory should be carried out during periods of lower occupancy, ideally when the hotel or restaurant is operating at half capacity or 30%.
If the organization is conducting an inventory of commodity-material stocks, it is best to choose a period when stock turnover and sales are lower. Additionally, it is important to ensure that there are no imports or local purchases taking place during that time.