Ask any accountant who has closed the month for a trading or manufacturing company what their worst nightmare is, and they will probably mention inventory. Not because counting goods is complicated in itself, but because in most SMBs the "physical" inventory and the "accounting" inventory live in different worlds that rarely match to the cent.
What is a kardex and what is it for?
The kardex is the detailed historical record of the receipts and issues of each product in a company’s inventory: what was bought, what was sold, what was transferred between warehouses and what balance is available at any given moment. It is, essentially, the "history file" of every item you carry.
There are two levels of kardex that every company should clearly distinguish:
- Physical (or unit) kardex: keeps count of how many units of each product come in and go out, without assigning them a monetary value yet. It answers the question "how much do I have?".
- Valued kardex: in addition to units, it assigns a unit cost and a total cost to each movement, so that at any time you can know not only how many units you have, but how much that inventory is worth in pesos. It answers the question "how much is what I have worth?", which is the one that really matters to accounting.
Inventory valuation methods in Colombia
To calculate the cost of each inventory issue (a sale, for example), there are different valuation methods accepted in accounting:
- FIFO (First In, First Out; PEPS in Spanish): assumes that the first units purchased are the first ones sold. In inflationary contexts, it tends to show a lower cost of sales and an ending inventory closer to current replacement value.
- LIFO (Last In, First Out; UEPS in Spanish): assumes the opposite: the last units purchased are the first to go out. Its use is more restricted under several current regulatory frameworks, including IFRS, which do not allow it for financial reporting purposes.
- Weighted average: calculates an average unit cost every time new goods come in, blending the previous cost with the new one. It is the most widely used method in practice because of its simplicity and because it smooths out sharp price swings.
The method you choose is not a minor detail: it directly affects the reported cost of sales, the gross profit for the period and the value of ending inventory on the balance sheet. Changing methods without a clear, documented accounting policy can create serious inconsistencies between periods.
The valuation method must be applied consistently over time. Changing it without justification affects the comparability of your financial statements and can raise red flags in an audit or a DIAN review.
Why do inventory and accounting get out of sync?
In a company where inventory is managed in one system (or in Excel) and accounting in a completely different one, every movement of goods has to be "translated" manually into a journal entry. That is where the most common errors slip in:
- A sale is recorded in the inventory system, but the corresponding cost of sales is not posted in accounting on the same day, or it is posted with a different amount.
- A transfer between warehouses is not reflected in any journal entry, because "it is not a sale", even though it does affect the valuation of each warehouse.
- An inventory adjustment for shrinkage or damage is made physically, but never reaches the accounting team.
- At month-end, the physical count does not match the accounting balance, and nobody can explain with certainty when the difference arose.
Each of these mismatches, however small it seems, adds up month after month. At the close of the fiscal year, many SMBs end up making a "global adjustment" to inventory just to balance the books, without really understanding what caused it.
Practical case: a distributor with three warehouses
Imagine a distributor of cleaning products with three warehouses (Central, North and South) that handles 1,200 active items. With separate inventory and accounting systems, the accounting team spent on average three full days at each month-end just cross-checking the sales reports from the inventory system against the movements recorded in accounting, and even then they closed with differences of between 8 and 15 million pesos in the value of the inventory, which they ended up adjusting "by eye".
After moving to an ERP where the valued kardex and accounting share the same database, each sale, transfer or inventory adjustment automatically generates its corresponding journal entry, with the cost calculated using the configured valuation method (in this case, weighted average). The result: the month-end close went from three days to less than an hour, and inventory differences practically disappeared, because there was no longer a "manual translation" between two systems that could fail.
How an integrated ERP eliminates the problem at the root
The fundamental solution is not to hire more staff to reconcile inventory and accounting every month, but to eliminate the need to reconcile: when the valued kardex and the accounting module share the same data source, every movement of goods —purchase, sale, transfer, adjustment— generates its journal entry in real time, with the correct valuation method applied automatically. Inventory stops being "a separate module" and becomes a natural extension of accounting.
If your inventory and your accounting live in different systems, start by measuring how many hours a month go into manual reconciliations. That number, multiplied by twelve months, is usually the most compelling argument to justify integration.