Retail Accounting Basics

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Retail accounting is a form of accounting that lists all stock at its final retail price, rather than the actual price paid for stock. It can be a useful tool for detecting loss, damage or theft of stock. However, it only provides limited details and is not a substitute for traditional accounts.

Traditional Accounts

Most forms of accounting involve recording every transaction at its actual cost. For example, a store might pay $100 for a box of 10 T-shirts. It may then sell seven of these T-shirts at $15 each. It will then have $105 in cash and stock worth $30, a total of $135, meaning the overall assets figure is $35 higher than at the start of the process The remaining stock is valued at the wholesale purchase price, even though it will (hopefully) eventually sell for the retail price.

Retail Accounting Concept

Retail accounting means that at every stage of the accounts, the company lists inventory based on its final retail price. In the T-shirt story example, the purchase of the box of 10 T-shirts would be listed at $150 (10 x $15) even though the firm actually paid $100. After selling the seven shirts the company would list a cash balance of $105 and stock with a value of $45 (three t-shirts x $15). This adds up to $150, matching the original $150 spent on stock.

Theft Detection

The main purpose of retail accounting is to track disparities in stock. This can be done simply by keeping track of changes in inventory value, expenditure and revenue from sales, all calculated based on final retail price. If, in the T-shirt example, the company ended up with a cash balance of $105 and stock with a value of $30 (two T-shirts x $15), the total is $135. This does not match up with the recorded purchasing expenditure of $150. The disparity shows that either stock has been lost or stolen, or that the revenue from a sale has been stolen or mislaid. While in this example the chances are the missing T-shirt would have been easily detected, the retail accounting technique can make it much easier to detect disparities when dealing with multiple lines of products at varying prices.

Limitations

The retail accounting system only works with physical stock and isn't compatible with services. It also fails to provide details of the profit levels that the company makes in buying and selling the stock, or other operating costs such as store rental and staff costs. This means it is not a substitute for full accounts and instead can only be used as an additional task.

References

About the Author

A professional writer since 1998 with a Bachelor of Arts in journalism, John Lister ran the press department for the Plain English Campaign until 2005. He then worked as a freelance writer with credits including national newspapers, magazines and online work. He specializes in technology and communications.

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