CHAPTER 4 How Inventory Impacts Profit

Inventory profit nirdharit karne mein ek mahatvapurn bhoomika nibhata hai.

Aaiye samajhte hain ki inventory ka prabhav profit par kaise galat tareeke se prayog kiya ja sakta
hai.

Inventory profit nirdharit karne mein ek mahatvapurn bhoomika nibhata hai. Is chapter mein hum
dekhenge ki alag-alag tareekon se inventory ka prabhav profit par kaise padta hai.

Sochiye ek pal ke liye ki main tables ka vyapari hoon.

Main tables 1,000 ke rate par kharidta hoon aur 1,500 ke rate par bechta hoon. Saal bhar mein main
10 tables kharidta hoon.

Saal ke ant tak mujhe pata chalta hai ki main sabhi 10 tables nahi bech paya. Main sirf 6 tables
bechne mein safal raha hoon.

Profit & Loss Account ke Expenses' side mein kharidi gayi tables dikhengi, aur Income ke roop mein
woh tables dikhengi jo bechi gayi hain.

Iss saal kya maine munafa kamaya hai ya ghaata?

Jab aap Profit & Loss Account dekhte hain, to aisa lagta hai ki ghaata ho gaya hai, lekin samajhdari
yeh kehti hai ki aisa nahi hona chahiye.

Har ek table jo maine 1,000 mein kharida aur 1,500 mein becha, us par maine 500 ka munafa
kamaya. Iska matlab hai ki 6 tables bechne par mujhe 3,000 ka munafa hona chahiye.

Samajhdari kehte hai ki maine munafa kamaya hai. Lekin Profit and Loss Account mein ghaata dikh
raha hai.

Jab aapko samajhdari ke jawab aur accounting ke jawab ke beech mein uljhan ho, to aapko kis par
bharosa karna chahiye? Mera ek salah hai: hamesha apni samajhdari par bharosa karo.

Iss khaas case mein, accounts ghaata dikhate hain, lekin samajhdari yeh kehti hai ki maine munafa
kamaya hai. To galti accounting mein honi chahiye.

Galti kahaan hai?

Aapko yaad hoga ki humne yeh tay kiya tha ki kharch ke roop mein consumption ko dekha jaana
chahiye, na ki bas kharche ka paisa. Lekin jo humne yahan record kiya hai, wo expenditure hai, yaani
paisa jo kharch kiya gaya hai, na ki jo consumed hua hai. Maine 10 tables kharidi thi, lekin sirf 6
tables consume hui hain. Iska matlab hai ki 6,000 ko expense ke roop mein dikhaya jaana chahiye
tha, 10,000 nahi.

Maine yeh example isliye diya hai kyunki yeh ek aise practical situation se aata hai jo aksar hoti hai.

Jab hum ab agree karte hain ki consumption hi expense hai, to accountants kabhi bhi consumption
ko record nahi karte. Wo hamesha purchases ko expense ke roop mein dikhate hain.

Aur accountants consumption ko record kyun nahi karte?

Kyuki accountant ka kaam sirf saare purchases, sales aur financial transactions ko record karna hota
hai. Consumption ko track karna accountant ka kaam nahi hai. Iske alawa, accountant ke paas na to
uske liye resources hote hain aur na hi itna waqt hota hai.

Iss example mein jahan sirf 10 tables hain aur 6 sell ho gayi, consumption ko measure karna asaan
hai. Lekin asli zindagi mein yeh zyada complex hota hai.

Bade manufacturing organizations alag-alag types ke raw materials ka bohot bada quantity kharidte
hain. Consumption ko track karna apne aap mein ek full-time job hai. Isliye accountant purchases ko
record karta hai jaise wo hote hain, aur unhe Expenses' side par Profit & Loss Account mein dikhata
hai, consumption ko consider kiye bina.

Lekin hum jaante hain ki agar consumption ko consider nahi kiya jaayega, to hum profit ka accurate
picture nahi paa sakte.

So how do we resolve this conflict?

To resolve this conflict, hum ek practical solution ka istemal karte hain. Jab consumption ko track
karna mushkil hota hai, accountant ko purchases ko expense ke roop mein reflect karne ki ijazat di
jaati hai, na ki consumption ko. Accountant ko yeh kaha jaata hai, "Agar aap poore period ke liye
consumption ko track nahi kar sakte, to kam se kam ek din ke liye non-consumption ko measure kar
sakte ho?"

Aapko yeh pata hoga ki organizations ko stock-taking karna padta hai, yaani closing inventory ko
measure karna padta hai.

Stock-taking asal mein wo measurement hai jo dikhata hai ki kya consume nahi hua hai.

Accountant ko consumption ko track karne ke liye ek "next-best formula" istemal karne ki ijazat hoti
hai: period ke liye total purchases me se closing inventory ko subtract karke, consumption ka
calculation kiya jaata hai.

Iska matlab yeh hai ki accountant ko profit ka figure nikaalne se pehle physically yeh dekhna padta
hai ki us din ke liye kya cheez consume nahi hui hai, aur closing inventory ka value nikaalna padta
hai.

Humare example mein, jahan 10 tables kharidi gayi thi, accountant warehouse jaake closing
inventory measure karega, aur wo paayega ki 4 tables abhi bhi stock mein hain. Iska matlab hai ki 6
tables consume ho gayi hain, jo ki 6,000 expense dikhata hai, na ki 10,000.

Ab accountant ko yeh figure accounts mein kaise include karna hai? Kaise 10,000 (purchases) ko
6,000 (consumption) mein reduce kiya jaayega? Yeh simple arithmetic problem ki tarah ho sakta tha,
jisme hum 4,000 ko 10,000 se subtract kar dete.
Lekin accounts mein hum plus aur minus ka use nahi karte, hum debits aur credits ka istemal karte
hain.

10,000 ko Profit & Loss Account mein debit kiya gaya hai, aur agar humein ise 6,000 mein reduce
karna hai, to humein 4,000 ko credit karna hoga, aur yeh hum karte hain.

Ab 4,000 ko Profit & Loss Account ke Incomes' side par closing inventory ke roop mein dikhaya
jaayega.

Non-accountants ko yeh samajhne mein thoda confusion hota hai ki sales (jo goods sold se income
dikhata hai) aur closing inventory (jo goods nahi beche gaye hain) dono ko income ke roop mein
kyon dikhaya jaata hai.

Lekin closing inventory, Incomes' side par, asal mein income nahi hota, balki purchases ke expenses'
side par jo value dikhayi gayi thi, usse ek negative figure hota hai. Jab hum total purchases ko
expenses' side par dikhate hain, aur jo goods consume nahi hue unki value ko incomes' side par
dikhate hain, to net effect consumption ka hota hai.

Agar aap second year mein sirf 4 tables bech rahe ho aur koi nayi purchase nahi ki gayi hai, toh
aapka profit kaise calculate hoga?

Yeh samajhna zaroori hai ki second year mein aapne koi new expenditure nahi kiya, aur aap sirf
pichle saal ke inventory ko bech rahe ho. Iska matlab hai ki aapne jo 4 tables beche, unpar koi direct
expenditure nahi hai, kyunki wo tables already pichle year ke inventory ka hissa hain.

Toh, aapka profit yeh nahi hoga ki 6,000 ka profit mil gaya, kyunki wo tables already last year ki
purchases ka hissa hain, jiska accounting treatment ho chuka hai. Aapka profit calculation second
year mein yeh hoga:

- Sales income = 4 tables * 1,500 = 6,000

- Lekin, yeh income pichle saal ke purchase ke value se match kar chuki hai. Iska matlab yeh hai ki
aapke liye yeh 6,000 already consumed expenditure ka hissa hai.
Isliye, second year mein aapne koi naya profit nahi banaya. Aapne jo 4 tables beche, uska revenue
simply inventory ki value ko represent karta hai, jo already pehle record ho chuka tha.

Yeh situation indicate karta hai ki agar aap new purchases nahi kar rahe ho, toh aapka profit
calculate karte waqt jo pehle ke inventories hain, unko hi adjust kiya jaata hai. Isliye, second year
mein profit 6,000 ka nahi ho sakta, kyunki aapne koi new expenditure ya purchase nahi kiya.

Aap bilkul sahi keh rahe hain! Jab aap second year mein 4 tables bech rahe ho, toh aapne un tables
ko consume kiya hai, aur yeh consumption ko expense ke roop mein record karna zaroori hai, chahe
aapne naye purchases nahi kiye.

Toh, is problem ko theek karne ke liye hum yeh steps follow kar sakte hain:

1. **Opening Inventory**: Second year ki starting inventory, jo ki last year ki closing inventory thi (4
tables), ko "Opening Inventory" ke roop mein treat kiya jayega. Iska value 4,000 hai (4 tables * 1,000
purchase price per table).

2. **Sales Revenue**: Aapne 4 tables beche, toh sales revenue hoga:

4 tables * 1,500 sale price per table = 6,000.

3. **Consumption/Expense**: Aapne 4 tables consume kiye, isliye yeh consumption expense ban
jaayega. 4 tables * 1,000 = 4,000 ko expenses ke roop mein record kiya jayega.

4. **Profit Calculation**:

- Sales Revenue = 6,000

- Consumption/Expense (Opening Inventory) = 4,000

- Profit = Sales Revenue - Expense

 Profit = 6,000 - 4,000 = 2,000

Is tarah, aapka profit 2,000 hai, jo aapne bech kar kamaya.

Yeh common sense se perfectly match karta hai: Aapne 4 tables beche, aur har table pe 500 ka profit
bana (1,500 sale price - 1,000 purchase price), toh total profit 2,000 hoga.

Toh, mistake yeh thi ki pehle aapne "closing inventory" ko directly income mein include kar diya tha,
jabki woh sirf consumed goods ka reflection hona chahiye tha.

Ab hum bank balance dekhte hain.

Mere bank balance ka kya hoga pehle saal ke end par?

Pehle saal mein, maine 10,000 kharch kiye aur 9,000 kamaye. Mera bank balance negative 1,000 hai.
Phir bhi maine 3,000 ka profit kamaya hai.

Ab in numbers ko expand karte hain taaki hum iske impact ko ek bade context mein samajh sakein.

Maan lijiye maine 100 million kharch kiye (aur 10,000 ki jagah) aur 90 million kamaye (aur 9,000 ki
jagah).

Ab mera bank balance 10 million negative hai.

Phir bhi maine 30 million ka profit kamaya hai.

Profit banana khatarnak ho sakta hai, kya aap samajhte hain ki profit kitna dangerous ho sakta hai?

Jab koi organization profit dikhati hai, toh kya hota hai?

Uske baad, ek line lag jati hai logo ki jo profit ka ek hissa chahte hain.

Yeh log kaun hain?

Sabse pehle employees hain, jo bonus ki ummid karte hain. Yehi log largely profit kamane ke liye
responsible hote hain aur ab inhe reward milna chahiye. Agle number par government hoti hai jo
profit ka 30-40 percent (ya zyada) income tax ke roop mein mangti hai.

Aur fir shareholders hain, jo dividends ki ummid karte hain.

Hamare example mein, mai already 10 million ka negative bank balance dekh raha hoon. Lekin meri
accounts dikhati hai 30 million ka profit. Aur employees, government aur shareholders sabhi paise ka
intezaar kar rahe hain.

Mai unko baar-baar bata raha hoon ki maine profit banaya hai lekin mere paas paise nahi hain. Lekin
koi mujhe nahi manta.

Kayi organizations ko mushkil isliye hoti hai kyunki wo profit nahi banate, aur kuch ko isliye hoti hai
kyunki wo profit banate hain.

Successful businesses isliye do pillars par khadi hoti hain. Pillar number one: profit generate karne ki
ability. Pillar number two: cash flow ko effectively manage karne ki ability.

Agar yeh dono cheezein theek se manage ho jaye, toh jyadatar financial mismanagement se related
problems nahi hoti.

Hum is topic par aur gehraai se baat karenge aage ke chapters mein jab hum financial management
ke do sabse important rules ko discuss karenge.

Inventory ka profit par jo impact padta hai, usse kis tarah se galat tarike se use kiya ja sakta hai, yeh
samajhne ke liye hum apne table-trading business ko phir se dekhte hain, bas is baar hum bade
numbers use karte hain taaki yeh zyada realistic lage.

Maan lo ki maine 10 million ke tables kharide hain, aur 9 million ke tables beche hain, aur warehouse
mein 4 million ke tables bache hain, jaisa ki 4,000 ki jagah 4 million.

Ab socho ki mere paas chaar warehouses hain alag-alag locations par, aur har warehouse mein 1
million ka inventory rakha gaya hai.

Ek junior accountant ko closing inventory measure karne ke liye diya gaya hai. Yeh junior accountant
ko yeh nahi pata ki mere paas chaar warehouses hain. Koi na koi wajah se usse lagta hai ki sirf do
warehouses hain.

Woh do warehouses visit karta hai aur yeh conclusion nikalta hai ki closing inventory ki value 2
million hai. Yeh figures enter karne ke baad, uske accounts mein profit 1 million dikhayi deta hai.

Yeh ek example hai ki kaise inventory ko galat tarike se measure karke profit ko galat dikhaya ja
sakta hai. Agar yeh accountant baaki do warehouses bhi check karta, toh shayad uska profit
calculation kuch aur hota.
Is point par, junior accountant ka immediate senior, jo samajhta tha ki mere paas teen warehouses
hain, yeh discover karta hai ki usne sirf do warehouses visit kiye the. Usse jab yeh baat batayi jati hai,
toh uska perception inventory ka ab 3 million ho jata hai.

Ab ek naya Profit & Loss Account jaldi se prepare kiya jata hai, jisme ab profit 2 million dikhayi deta
hai.

Yeh situation yeh dikhata hai ki jab inventory ko sahi tarike se measure kiya jata hai, toh profit bhi
accurately reflect hota hai. Agar inventory ki galat valuation hoti, toh profit bhi galat hota, jaise pehle
1 million dikhayi diya tha.

Ab chief accountant jab statement review karti hain, toh wo yeh poochti hain ki kya closing inventory
ko sabhi chaar warehouses ke liye consider kiya gaya tha. Junior accountant jaldi se apni final visit
complete karta hai, aur inventory ka perception phir se badalta hai, aur iske saath profit ka figure bhi
badal jata hai.

Ab Profit & Loss Account me profit figure 3 million dikhayi deta hai, jo ab tak ka sahi profit hai. Yeh
situation yeh dikhati hai ki agar closing inventory ko sabhi warehouses ke liye sahi tarike se measure
kiya jaye, toh profit ka calculation accurate hota hai.
Now look back at these three Profit & Loss Accounts.

How does inventory impact profit?

You will notice that as the inventory figure increases, so does the figure of profit. In the first case,
when the inventory was 2 million, the profit was 1 million. In case two, when the inventory
increased to 3, the profit also increased to 2! And, in the third case, when the inventory was the
highest at 4 million, the profit was also the highest at 3 million!

This definitely seem to indicate that the higher the levels of inventory we keep, the higher our profit
will be!

No business person would agree with this.

It is common sense that higher inventories do not fetch higher profits. It is the ability to make and
sell more that brings more profit.

But the three Profit & Loss Accounts tell a different story.

Where is the gap in logic?

Let's take another look at each of these cases.

Let's assume that they are actually the Profit & Loss Accounts of three different companies, A, B and
C.
Yahan error yeh hai ki hum inventory ko alag se dekh rahe hain. Inventory ko hamesha purchases ke
saath dekhna chahiye. Inventory ka matlab hai wo cheezein jo consume nahi hui hain. Hamari total
purchases me se jo cheezein consume nahi hui, wo inventory ka part hoti hain.

Toh, jab hum inventory ko dekhte hain, toh hum yeh nahi samajh pa rahe ki inventory sirf wo
cheezein hain jo consume nahi hui. Jab hum purchases ki baat karte hain, toh total purchases me se
jo cheezein consume ho gayi hain, wo hi hamare expenses ban jaati hain, aur wo hi profit ko impact
karte hain.
Agar hum yeh dhyaan me rakhein ki zyada inventory ka matlab yeh nahi ki humne zyada profit
kamaya hai, toh hum properly profit ko samajh sakte hain.

Yahan par jo point samajhna zaroori hai wo yeh hai ki higher inventory ka matlab zyada profit nahi
hota. Profit ka asli factor consumption hota hai, na ki inventory. Jaise humne example mein dekha,
Company A, B aur C sab ki sales 9 thi, lekin jo company zyada efficiently consume karti thi, wo zyada
profit kama rahi thi.

Unscrupulous business persons yeh samajh ke profit ko manipulate kar sakte hain, jaise ki unhone
zyada closing inventory show karke apne profit ko inflate kiya. Is tarah ki practices ko samajhna
zaroori hai taaki hum accounting aur financial statements ko sahi tareeke se samajh sakein.

Ab hum Balance Sheet ki taraf bhi dekhte hain, jo profit ke alawa ek aur important financial
document hoti hai.

Agar tumhe khelna hi hai, toh shuru mein teen cheezein decide kar lo:

game ke rules,

stakes (daav),

aur quitting time (kab band karna hai).

— Chinese Proverb