Understanding Your Options for Inventory Asset Breakdowns

When managing your Inventory Asset account on your Balance Sheet in Pocket, you have two main approaches:

Option 1: Single Generic Inventory Asset Account

• Description: Utilize one generic Inventory Asset account without detailed breakdowns.
• Process: Pocket deducts the Cost of Goods Sold directly from the Inventory Asset account for product orders.
• Advantage: Simplest approach to implement and maintain.
• Disadvantage: Lacks the ability to track detailed inventory breakdowns.

Option 2: Granular Inventory Accounts

• Description: Employ both granular inventory accounts and a parent Inventory Asset account.
• Structure: Parent account equals the sum of child accounts plus its own recorded amount.
• Example:
  • Inventory Asset - $50,000
    • Finished goods - $17,000
    • Raw material - $23,000
    • Packaging - $10,000
• Process: Pocket deducts COGS from the parent Inventory Asset account if it has a balance; otherwise, it deducts from the first available child account (e.g., Finished goods).
• Requirement: Monthly reporting of ending balances for each inventory category for CPA rebalancing.

Recommendation

If you don't have an inventory management ERP system, we suggest consolidating all sub-inventory accounts into one generic Inventory Asset account for better ROI.