A retail business involves sales, inventories and other elements, making accounting detailed and complex. Accounting, also known as the language of business, helps owners and managers make sound decisions based on real data, not gut-feelings. That is a major advantage of using accounting information in a retail business -- financial information is black-and-white with no room for gossip or wishful thinking.
Retail establishments must carry inventory for sale to customers. If inventory is too small, the firm may lose sales; if the inventory is too large, the firm may have too much money tied in inventory that could have been used for something else. Inventory management should be part of a retail accounting system. Many businesses use computerized retail systems that include inventory management through bar-codes. When you purchase items, they are bar-coded and entered in the system; when you sell the items, they are removed automatically from inventory, allowing for good control of inventory levels.
Many states, such as California, not only tax certain retail sales, but also require vendors to remit the money to the government promptly. An accounting system should calculate the taxes on sales and record them as a payable, an item you owe, not a revenue. On a manual system, you calculate the taxes and book them on a separate account as well. The idea is to know what you're going to pay to the government when sales taxes are due.
A retail accounting system, manual or computerized, should give business owners reports on sales, cost of goods sold and other expenses. Traditionally, accounting reports include a balance sheet, showing cash, receivables, payables and inventory balance. Many accounting systems offer reports on accounts receivable -- who owes you money, how much and for how long. Based on this reporting, management can make decisions about collections and future sales. If a customer owes you a lot of money, it may make no sense to extend him more credit.
Retail businesses can be very different from one another, requiring a more targeted approach in selecting accounting software. For example, a grocery store is different from a bookstore and both are retail firms. A specialized software within the retail sector will give you most functionalities you need to run your business, including common reports. You could purchase a general retail accounting system, but you may need to get the program customized for your needs, which can be expensive.
Sheila Shanker is a certified public accountant based in California. She writes online courses for professionals seeking CPE hours and has also published the book "Guide to Non-profits: From the Trenches." Her articles have been published in national magazines such as the "Journal of Accountancy," "Architecture Business and Economics" and "Veterinary Economics." Shanker holds a Master of Business Administration.