Inventory Ledger
An inventory ledger is a detailed record of the inventory of a business. It tracks each inventory item and provides ongoing documentation of all transactions that affect the inventory’s quantity and value.
This ledger typically includes information such as:
- Item Description: A brief description of each item in inventory.
- Item Identifier: This can be a SKU (Stock Keeping Unit), barcode, or other identifiers used by the business to track individual items.
- Initial Quantity: The amount of the item in stock at the beginning of the period.
- Purchases or Production: Quantity added to inventory through purchasing from suppliers or production.
- Sales or Usage: Quantity removed from inventory due to sales to customers or usage in production.
- Ending Quantity: The amount of the item in stock at the end of the period. This should equal the initial quantity plus purchases/production minus sales/usage.
- Cost per Unit: The cost associated with each unit of the item.
- Total Value: The total value of each item in inventory, calculated as the ending quantity times the cost per unit.
The inventory ledger is used to keep track of inventory movements and to calculate the value of the inventory for financial reporting purposes. It is also used to identify discrepancies, to evaluate inventory turnover, and to inform purchasing and production decisions.
Inventory ledgers can be kept manually, but most businesses today use computerized inventory management systems, which can automatically update the ledger as transactions occur.
Example of an Inventory Ledger
Let’s look at a simple example of an inventory ledger for a small business that sells a particular model of a laptop.
| Date | Description | Quantity In | Quantity Out | Balance | Unit Cost | Total Cost |
|---|---|---|---|---|---|---|
| 2023-06-01 | Beginning | 100 | $500 | $50,000 | ||
| 2023-06-05 | Purchase | 50 | 150 | $510 | $76,500 | |
| 2023-06-10 | Sale | 30 | 120 | $510 | $61,200 | |
| 2023-06-15 | Sale | 20 | 100 | $510 | $51,000 | |
| 2023-06-20 | Purchase | 30 | 130 | $520 | $67,600 | |
| 2023-06-25 | Sale | 10 | 120 | $520 | $62,400 | |
| 2023-06-30 | Ending | 120 | $520 | $62,400 |
Here’s a quick rundown of the ledger:
- On June 1, the business started with 100 laptops in inventory, each with a cost of $500, for a total cost of $50,000.
- On June 5, the business purchased 50 more laptops at a cost of $510 each, bringing the total inventory to 150 laptops and the total cost to $76,500.
- On June 10, the business sold 30 laptops. This reduced the inventory to 120 laptops and the total cost to $61,200.
- On June 15, the business sold another 20 laptops, leaving 100 laptops in inventory with a total cost of $51,000.
- On June 20, the business purchased an additional 30 laptops at a cost of $520 each. This increased the inventory to 130 laptops and the total cost to $67,600.
- On June 25, the business sold 10 laptops, reducing the inventory to 120 laptops with a total cost of $62,400.
- At the end of the month (June 30), the business had 120 laptops in inventory with a total cost of $62,400.
Please note that this example uses a specific identification or FIFO (First In, First Out) method for the cost flow assumption. In reality, the method used could affect the unit cost and total cost values.
