Inventory software for managing FIFO or LIFO inventory costing
In today's fast-paced world of business, every organization wants to manage its inventory in the most efficient way possible. One of the most critical aspects of inventory management is the cost accounting method used. Two of the most popular cost accounting techniques used to manage inventory are FIFO and LIFO. Several inventory software solutions available on the market can help businesses manage inventory using either the FIFO or LIFO costing method.
FIFO stands for First-in-First-Out. This means that the oldest inventory items are always sold first, and the most recent inventory items are sold last. Therefore, the cost of goods sold (COGS) is calculated based on the oldest items present in the inventory. This results in a lower cost of goods sold on the company’s income statement and an accurate accounting of inventory costs as it prioritizes the movement of older inventory items that are likely to have an expired shelf life.
On the other hand, LIFO stands for Last-in-First-Out. It means that the most recent inventory items are sold first, and the oldest items are sold last. As a result, the cost of goods sold is calculated based on the most recent items present in the inventory. This accounting method gives a higher cost of goods sold on the company’s income statement. Additionally, this method heavily taxes inflation; when prices are increasing, the most recently purchased inventory items cost more, resulting in a higher cost of goods sold and lower taxable income.
Inventory software can manage both the FIFO and LIFO costing methods, depending on a company’s preference. Some inventory solutions offer the option to toggle between both methods depending on the business's needs.
However, it's critical to understand that choosing between FIFO and LIFO costing methods could affect a business's reported income, taxable income, and financial ratios such as gross profit margin and inventory turnover. In some cases, companies may prefer to use weighted average cost (WAC) accounting method instead if they tend to have relatively stable inventory and commodity prices. This accounting method determines the average cost of all inventory items in stock.
When choosing inventory software, businesses should consider the type of inventory they have as well as their business’s needs and budget. Inventory management software should have features such as inventory tracking, sales orders and purchase orders management, real-time inventory visibility, and support for multiple warehouses.
Several inventory software options that work well for businesses that prefer the FIFO or LIFO costing method include Odoo, Zoho Inventory, QuickBooks Enterprise, TradeGecko, and Cin7. These software solutions offer features such as inventory tracking, sales order management, purchase order management, and real-time inventory visibility.
Odoo is a comprehensive ERP solution designed for small to mid-sized businesses. The software integrates inventory management with accounting, sales, vendor management, and e-commerce. It supports FIFO costing and allows users to add multiple warehouse locations.
Zoho Inventory is a cloud-based inventory management system best suited for small to medium-sized businesses. It offers multi-channel sales management, order tracking, warehouse management, and real-time inventory level updates. It supports both FIFO and LIFO costing methods.
QuickBooks Enterprise by Intuit is a popular accounting and inventory management software designed for mid-sized businesses that have outgrown QuickBooks Pro and Premier. The software offers inventory tracking, sales order management, purchase order management, and real-time inventory visibility with FIFO costing.
TradeGecko is another cloud-based inventory management software solution suitable for small to medium-sized businesses. The software offers features such as inventory tracking, sales order management, purchase order management, and multi-currency support, supporting both FIFO and LIFO costing.
Finally, CIN7 is a cloud-based inventory software solution that caters to businesses of all sizes. The software offers inventory management, POS system integration, order management, and shipping integration, and supports both FIFO and LIFO costing.
In conclusion, choosing the right inventory software is essential to managing a business's inventory. There are several software options available to cater to businesses that prefer the FIFO or LIFO costing method. Businesses should carefully consider the type of inventory they have and their business needs when choosing the right inventory software solution.