Inventory bookkeeping tracks three things: what came in, what went out and what is left. The cost of the goods you sold — not the cost of everything you bought — is what reduces your profit.
Stock in, stock out, stock left
- Stock in: purchases from suppliers, returns from customers.
- Stock out: sales, returns to suppliers, damage and write-offs.
- Stock left: opening stock + stock in − stock out.
Count physical stock regularly and compare it with your records. Differences point to missing entries, theft or damage.
Cost of goods sold (COGS)
Profit is sales minus the cost of the goods you actually sold:
COGS = opening stock + purchases − closing stock. If sales that month were Rs 5,00,000, gross profit is Rs 1,50,000.
Valuing stock
When you buy the same item at different prices, you need a consistent method to decide the cost of what you sold — for example FIFO (first in, first out) or weighted average. Choose one method and keep using it, so profit is comparable from year to year.
Good habits
- Give every product a code or barcode.
- Record purchases from the supplier's bill, with its BS date.
- Record every sale — cash and credit — as it happens.
- Count stock at least at the end of each fiscal year (Ashadh end).
- Set reorder levels for fast-moving items.
KhataIN's inventory records stock movements from purchases and sales automatically and calculates the cost of goods sold for your profit and loss statement.