In this article, we will explore what a non-inventory item is and its key aspects. We will also share our management process and apply it to an example. Read on to learn more.
A non-inventory item is a product or material that a business purchases or uses but does not formally track as part of its inventory because it is typically low-cost, consumed quickly, or has unique characteristics that make tracking impractical.
While there are various non-inventory items, we have listed below some examples of non-inventory items:
Office supplies: Pens, paper, staplers, and sticky notes, are common non-inventory items. These items are used on a day-to-day basis in an office environment and are typically expensed as they are consumed rather than being tracked in inventory.
Cleaning Supplies: Cleaning products like detergents, brooms, mops, and trash bags used for maintaining a company's facilities often fall under the category of non-inventory items.
Spare Parts: Small spare parts or components used for maintenance or repairs can be considered non-inventory items if they are not formally tracked in an inventory management system.
Packaging Materials: Items like cardboard boxes, packing tape, and bubble wrap are typically categorized as non-inventory items because they are used as needed for shipping and packaging purposes and are not stored as part of a company's inventory.
Marketing Materials: Promotional items like brochures, flyers, and banners, which are distributed or used in marketing campaigns, are often treated as non-inventory items.
Here are some characteristics of non-inventory items to help you identify them:
Non-inventory items are products or assets that a business does not intend to resell and are not considered part of its regular inventory. These items can include office supplies, machinery, and fixed assets.
Non-inventory items, such as "Clorox Disinfecting Wipes" for cleaning or "3M Post-it Notes," are treated as expenses upon purchase. This ensures immediate recognition of their costs in the company's financial records.
Non-inventory items often require capitalization on the balance sheet and may be subject to depreciation or amortization over time. This helps allocate their cost across multiple accounting periods.
Non-inventory items can be further categorized into fixed assets (e.g., buildings, vehicles) and consumables (e.g., cleaning supplies, stationery), based on whether they are used repeatedly or consumed once.
Non-inventory items are often used across various departments within an organization, making them essential for day-to-day operations. They may be shared resources.
Here's our 7-step process to effectively manage non-inventory items in your business:
This step involves acquiring non-inventory items needed by the business. For instance, you might create purchase orders for products like "Bic Ballpoint Pens" from a trusted office supply vendor.
Example: The company needs office supplies, so it creates a purchase order for 100 "Bic Ballpoint Pens" from its preferred office supply vendor.
Non-inventory items, such as "Clorox Disinfecting Wipes" for cleaning or "3M Post-it Notes," are treated as expenses upon purchase. This ensures immediate recognition of their costs in the company's financial records.
Example: The purchase of "Clorox Disinfecting Wipes" for $300 and "3M Post-it Notes" for $50 is recorded as an expense in the accounting system.
Some non-inventory items, like printer paper, may be tracked for consumption to prevent waste and ensure efficient usage.
Example: The company monitors the usage of "Hammermill Printer Paper" and reorders when the stock reaches a predefined minimum level.
To maintain a sufficient supply of non-inventory items, a process for reordering or replenishment is essential when items are consumed or run low. For instance, replenish "Swingline Standard Staplers" as needed.
Example: As the office "Swingline Standard Staplers" are depleted, the procurement team reorders 15 new staplers to ensure an adequate supply.
For non-inventory items that require it, a depreciation process allocates costs over their expected useful life. This can be applicable to non-inventory fixed assets like "Steelcase Office Chairs."
Example: The company calculates and records annual depreciation of $500 for a "Steelcase Office Chair" over its five-year useful life.
Effective record-keeping involves maintaining documentation of non-inventory item purchases, consumption, and associated expenses for accounting and reporting purposes. Keep records for items like "HP Printer Cartridges."
Example: The company archives all purchase receipts and expense records for "HP Printer Cartridges" in a well-organized digital filing system.
For non-inventory items with unique characteristics or higher values that require specific tracking, implement an inventory control process. This includes cataloging, insuring, and periodically appraising these items, such as valuable "Pablo Picasso Artworks."
Example: The company owns valuable "Pablo Picasso Artworks," which are cataloged, insured, and appraised every three years to ensure proper protection and valuation.
Let’s apply our management process to SmartOffice Solutions which aims to enhance its management of non-inventory items for cost efficiency and improve operational effectiveness.
SmartOffice Solutions recognizes the need for various non-inventory items in its day-to-day operations. The company creates purchase orders with its trusted suppliers. For instance, SmartOffice Solutions decides to purchase 500 "Epson Printer Cartridges" from its preferred office supply vendor.
Upon receiving the 500 "Epson Printer Cartridges" from the vendor, SmartOffice Solutions records the cost of these cartridges as an immediate expense in its financial records. The expense is recorded as $5,000 in the accounting system.
SmartOffice Solutions also decides to track the consumption of certain non-inventory items, such as "Xerox Copier Paper." They implement a system to monitor paper usage and reorder when the stock falls below a predefined minimum level to prevent any disruptions in their printing operations.
To ensure a continuous supply of critical non-inventory items like "Dell Computer Monitors," SmartOffice Solutions establishes a replenishment process. When the stock of computer monitors runs low, the procurement team automatically places an order for 20 new monitors to maintain an adequate inventory.
For non-inventory items that require depreciation, SmartOffice Solutions includes this step in its management process. For example, they own high-end ergonomic chairs for their employees. They record annual depreciation of $1,000 for each chair over their expected useful life of five years.
SmartOffice Solutions places a strong emphasis on effective record-keeping. They maintain meticulous documentation of all non-inventory item purchases, consumption, and associated expenses. Records for items like "Logitech Wireless Keyboards" are stored in a digital filing.
While most non-inventory items are treated as expenses, SmartOffice Solutions recognizes the need for inventory control for certain high-value items. For instance, the company owns a collection of rare antique books in its executive library. These books are cataloged, insured, and appraised every two years to ensure their proper protection and valuation.
We hope this article has provided you with a better understanding of what a non-inventory item is, its key aspects and how to implement our management process.
If you enjoyed this article, you might also like our article on inventory in transit or find out if inventory is a current or non-current asset.
