Keeping track of inventory and fixed assets is crucial when calculating business success. Not only is inventory valuable because of its shelf worth, but your fixed assets enable your business to run. Knowing the difference between the two is important for both accounting and stock control purposes.
What are fixed assets?
A fixed asset is a piece of property owned by a business that isn’t one of the company’s products and isn’t likely to be sold unless to be upgraded. Assets tend to be tools such as equipment and machinery used to run the business. Assets can also come in the form of intellectual property or copyrights, where they are non-tangible but still worth monetary value. Unlike inventory, assets are not specifically for the purpose of reselling. Instead, they are normally sold because of upgrades, redundancy or business closure.
What is inventory?
Inventory covers the sellable goods of a company. This can include fully finished products, raw materials, or semi-completed goods. Inventory items are produced to sell, rather than to stay with a company for a long time. Inventory for stock control purposes includes the amount paid for the materials or goods.
Why are they important in business?
In terms of stock control, reaching an optimal level of inventory can minimise risk. Overstocking or running out of stock can lead to issues of customer dissatisfaction and lost profit. Effective inventory management can ensure stock turnover rates and identify idle inventory that is costing you money.
Understanding fixed assets is important because of their lifespan. Assets such as computers or machinery have slower depreciating rates than stationery or consumables, meaning that short-lived assets may be considered a part of inventory because of how quick-moving they are. Understanding the value of assets is important for reselling purposes and to account for company value.
Tracking stock and assets for business efficiency
Stock control and asset management are critical components of the accounting process and enable a business to run effectively. By efficiently tracking inventory and assets, a business can calculate depreciation rates, maintenance schedules, and stock levels. Tracking inventory can assist with the sales and ensuring sales targets are met.
However, it is important to recognise the difference between inventory and asset tracking systems. Inventory systems are good for fast turnovers such as the storage and sales of products, but don’t consider maintenance schedules or long-term future plans. Asset management systems track depreciation rates and track calibrations or tune-ups, allowing for the upkeep of equipment.
Understanding and tracking inventory and assets is important in any growing business. Stock control and asset management allow for companies to total how much is tied up in their property and estimated profits. Effective management of these can improve business insights and help create reachable goals for the future.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.