The retail industry is probably the industry that the average person is the most familiar with. We buy food at the grocery store, order things online, and get fuel at the gas station. But when it comes to accounting, there are some unique aspects to be considered because there are some accounting processes involved in retail that differ from those in other industries.
Here are five factors that make retail accounting unique.
1. Inventory Management
Unlike many other industries, inventory management is key to accurate accounting in retail. In order to make a profit, you need to have your shelves stocked, but they shouldn’t be overstocked either, or you will tie up a lot of your working capital in inventory. Most of this can be managed easily with inventory management software and by checking the counts on every delivery, but it still requires regular manual inventory counts because of theft, mistakes, and other things that can make numbers inaccurate.
2. Sales Tax Reporting
Sales tax is full of complexities. In some locations, you have only state sales tax to worry about. In others, there are state and local taxes. Most of the time, you have to pay sales tax at the location a product was purchased, but in a few states, you have to pay it where the product has been shipped. And in California, it could be either of these options, depending upon the transaction. Sales tax is also due at the time of sale, so it has to be recorded as payable, whereas in other industries, taxes are recorded as revenue and then reversed at tax time.
3. Payroll Processing
Other industries also have payroll, but payroll in the retail sector can get more complicated. A retail store could have temporary employees that only work during holidays and busy seasons, as well as full-time, part-time, and salaried employees. In this case, salaries can’t be standardized, and there could be changes every month. Computing taxes, deductions, and withholding could also get complicated with all these different types of employees.
4. Report Generation
There may be some types of businesses that can run without regular reporting, but in retail, reporting is necessary and diverse. Retail store owners need reports on the cost of goods sold (COGS), expenses, sales volumes, inventory, accounts receivable, and accounts payable. They also should have an aging schedule that lists accounts receivable by their due date so that they track which customers are paying their bills on time and possibly lower their credit limit. All these and other reports are necessary for making important decisions about the future of a retail store.
5. Dedicated Software
Most retail stores use point of sale (POS) software that is either unique to their business or to their retail sector. A gas station POS would be like most others except for the fact that they sell gas which is measured in gallons. A grocery store POS will have the ability to set the price of products based on their SKU or bar code, as well as by weight. Custom POS applications make handling sales easier, but it creates one more source of data that must be reconciled with both inventory and business deposits.
At PABS, we have been helping retail stores by providing end-to-end accounting services, making it easier for them to focus on tasks critical for business growth. Learn more by giving us a call today.