Paying attention to a company's closing inventory may be like watching the ins and outs in corporate warehouses and seeing the way the business makes money. If you delve into the organization's stock accounts, you see items such as beginning balance, period sales and purchases, ending balance and net variation -- which is integral to the corporate statement of profit and loss.
Merchandise Valuation
Subtracting or adding closing stocks -- a key procedure in preparing a statement of profit and loss -- helps a company's accountant determine the value of merchandise the business sold during a period, or "cost of goods sold," as finance people call it. To determine the value of merchandise shipped to customers, the accountant takes the inventory balance at the beginning of a period, adds goods the company purchased during the period and subtracts the ending balance of merchandise. Some companies deduct things such as waste and scraps -- items financial commentators call "decremental factors" in inventory calculation. A statement of profit and loss is also known as an income statement or statement of income.
Corporate Size vs. Technology
The size of a company, among other things, matters in inventory appraisal, especially with logistical evaluation and period-end inventory review. If the business is a small player with a few warehouses in one or two locations, top leadership may deem it strategically sensible to have a dedicated team monitor goods and count them before computing the cost of merchandise sold. Taking a physical count of stocks and getting into storage facilities to manually inspect items can help the company save money. For a stalwart company -- say, a large multinational with warehouses in far-flung locations -- manual inventory counting may be practically difficult, and management may decide that using state-of-the-art technology can help cope with logistical tedium.
Supply Chain Management
Supply chain management deals with the medley of tools, equipment and intermediaries a company relies on to ensure prompt merchandise delivery, monitoring weather and regulatory conditions while goods are on their way to retail centers and other customer distribution facilities. If a company has a sound logistical platform and follows proper procedures when receiving and shipping merchandise, this effective upstream arrangement may help warehouse managers know where stocks are, find them quickly and count them accurately when the time comes for period-end record-keeping and financial reporting.
Financial Reporting
Calculating the cost of merchandise sold affects other financial statements besides an income statement. Inventory is a short-term asset accountants report in a balance sheet, also known as a statement of financial position. Merchandise sold also touches on net performance results, which flow into retained earnings -- an equity statement component.
