CPG Inventory Accounting Checklist: What Your System Needs to Track

CPG Inventory Accounting Checklist

Once a CPG brand crosses about a million dollars in revenue, the spreadsheet-and-vibes approach to inventory stops working. Co-packer runs, multiple SKUs, 3PL transfers, retail vs DTC channel mix — it outgrows what Shopify alone or QuickBooks alone can handle.

This checklist covers what a real inventory accounting setup needs to track. Walk through it with whoever owns your books. Anything you cannot check off is a gap worth closing before it shows up as a variance or an audit finding.

Chart of accounts setup

• Raw materials inventory is a separate asset account from finished goods inventory

• Work-in-process is tracked separately if you co-pack or manufacture in stages

• Packaging components (cartons, labels, shrink wrap) are tracked as a separate inventory category

• Inbound freight is capitalized into inventory cost, not expensed immediately

• Duties and tariffs are capitalized into landed cost

• 3PL receiving and inbound fees are included in landed cost

• Cost of goods sold has sub-accounts by channel (retail, DTC, wholesale, Amazon)

• Spoilage, damages, and shrink have a dedicated expense account separate from COGS

• Trade spend has its own account structure with sub-accounts by program type

SKU and product data

• Every finished good has a standard cost that includes raw materials, labor, packaging, and overhead

• Standard costs are reviewed and updated at least quarterly

• Bill of materials (BOM) exists for every finished SKU

• BOMs include yield adjustments for production loss

• Unit of measure conversions are defined (cases to eaches, lbs to kgs, gallons to liters)

• Each SKU is tagged with category, sub-category, and channel availability

• Discontinued or retired SKUs have a process for writedown and removal

Location and movement tracking

• Inventory is tracked by physical location (co-packer, 3PL, retail backstock, sample room)

• Transfers between locations create offsetting entries, not duplicate counts

• In-transit inventory is recognized as an asset with a clear reconciliation

• Consignment inventory at retailers is tracked separately until sold through

• Sample and promotional inventory is expensed when pulled from sellable stock

Monthly close procedures

• Physical inventory counts happen at least quarterly, monthly for high-velocity SKUs

• Cycle counting covers at least 10% of SKUs each month

• Book-to-physical variance is reconciled before close is locked

• Variance threshold is defined (typically 2-3% of inventory value) that triggers investigation

• Spoilage and damage writeoffs are recorded against the correct SKU, not bulked into a "shrink" line

• Period-end cutoff is enforced (inbound received by the last day of the month stays in the period)

Reporting you should be able to pull every month

• Inventory turnover by SKU and category

• Days of inventory on hand by channel

• Gross margin by SKU after trade deductions

• Slow-moving inventory aging report

• Obsolescence reserve calculation and any adjustments

• Cost of goods variance against standard (favorable vs unfavorable)

System integration

• ERP or inventory system (NetSuite, Cin7, SOS Inventory, Fishbowl) connects to accounting

• Shopify, Amazon, and wholesale platforms sync into the inventory system

• 3PL sends daily or weekly inventory files that reconcile to system totals

• Co-packer production runs are recorded as inventory receipts with lot tracking

• Returns and RMAs flow back through inventory, not booked as revenue reversals only

Audit readiness

• You can produce a roll-forward of inventory from prior period ending balance to current

• Every adjustment has documentation (count sheet, damage report, writedown memo)

• Standard-to-actual cost variances can be explained with source data

• Physical count procedures are documented in a standard operating procedure

• At least two people can run the monthly inventory close

Red flags to investigate

If you check off fewer than 20 items, your inventory accounting is running on trust. That works until it does not — usually right when you are trying to raise capital, sell the business, or reconcile an unexpected margin compression.

The most common failure patterns we see on Quick Reviews:

• Landed cost is calculated inconsistently, so margin by SKU cannot be trusted

• Inventory sits at the 3PL that nobody has counted in a year

• Trade spend is buried in COGS and makes margin look worse than it actually is

• Standard costs were set when the brand launched and never updated despite a 30% ingredient cost increase

Any of these turn into real dollars on an exit diligence or a tax return.

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*Thryve builds and maintains inventory accounting for CPG brands from pre-revenue through nine figures. If this checklist exposed gaps, a Quick Review gives you a prioritized punch list of what to fix first.*