# how does inventory effect COGS?

RB
Guest
Posts: n/a
Thanked:

 07-04-2004, 02:59 PM
In the retail sales business, how does inventory effect cost of goods sold?
I guess any losses found from physical inventory become an expense and that
increases the cost of goods sold, maybe.

Wayne Brasch
Guest
Posts: n/a
Thanked:

 07-04-2004, 04:03 PM

"RB" <(E-Mail Removed)> wrote in message
news:fMUFc.6543\$(E-Mail Removed)...
> In the retail sales business, how does inventory effect cost of goods

sold?
> I guess any losses found from physical inventory become an expense and

that
> increases the cost of goods sold, maybe.
>
>

Cost of Goods Sold is inventory that is no longer with the company.

Wayne Brasch, CPA, M. S. Taxation

RB
Guest
Posts: n/a
Thanked:

 07-04-2004, 05:27 PM
Ummmm---a little obscure for my newbie level.

To clarify, let's take the typical P & L statement. What factors/elements
go into calculating COG?

Wayne Brasch
Guest
Posts: n/a
Thanked:

 07-04-2004, 06:01 PM

"RB" <(E-Mail Removed)> wrote in message
news:J3XFc.16582\$(E-Mail Removed).. .
> Ummmm---a little obscure for my newbie level.
>
> To clarify, let's take the typical P & L statement. What factors/elements
> go into calculating COG?
>
>

COGS is calculated by taking inventory at the beginning of the period and
adding purchases of merchandise during the period. You then get merchandise
available for sale. From that you subtract the inventory at the end of the
period. What you have then is COGS for the period. This represents the
cost of inventory sold during the period, hence COGS. There may be other
things to be included in this calculation, but let's just keep it simple at
the moment.

Wayne Brasch, CPA, M. S. Taxation

_
Guest
Posts: n/a
Thanked:

 07-04-2004, 06:11 PM
If you ask very vague questions you are quite likely to get equally
vague answers which, as an admitted newbie, may seem obscure to you.

Why don't you try to be very explicit, including some context or
background. What are you really trying to do, and why?

"RB" <(E-Mail Removed)> wrote in message
news:J3XFc.16582\$(E-Mail Removed).. .
> Ummmm---a little obscure for my newbie level.
>
> To clarify, let's take the typical P & L statement. What

factors/elements
> go into calculating COG?
>
>

Wayne Brasch
Guest
Posts: n/a
Thanked:

 07-04-2004, 08:31 PM

"_" <(E-Mail Removed)> wrote in message
news:hLXFc.2608\$(E-Mail Removed).. .
> If you ask very vague questions you are quite likely to get equally
> vague answers which, as an admitted newbie, may seem obscure to you.
>
> Your clarification isn't much help.
> Why don't you try to be very explicit, including some context or
> background. What are you really trying to do, and why?
>
>
> "RB" <(E-Mail Removed)> wrote in message
> news:J3XFc.16582\$(E-Mail Removed).. .
> > Ummmm---a little obscure for my newbie level.
> >
> > To clarify, let's take the typical P & L statement. What

> factors/elements
> > go into calculating COG?
> >
> >

>
>

It appears to me that RB, the original poster is trying to learn and may be
where you are, calculate COGS in a manner different from what I described?

Wayne Brasch, CPA, M. S. Taxation

S.M. Serba
Guest
Posts: n/a
Thanked:

 07-05-2004, 01:15 AM
Not in Ontario we don't.

--
Stephanie Serba, AICIA
Accounting & Technology
www.dbo.ca

"Wayne Brasch" <(E-Mail Removed)> wrote in message
news:(E-Mail Removed)...
>
> "_" <(E-Mail Removed)> wrote in message
> news:hLXFc.2608\$(E-Mail Removed).. .
> > If you ask very vague questions you are quite likely to get equally
> > vague answers which, as an admitted newbie, may seem obscure to you.
> >
> > Your clarification isn't much help.
> > Why don't you try to be very explicit, including some context or
> > background. What are you really trying to do, and why?
> >
> >
> > "RB" <(E-Mail Removed)> wrote in message
> > news:J3XFc.16582\$(E-Mail Removed).. .
> > > Ummmm---a little obscure for my newbie level.
> > >
> > > To clarify, let's take the typical P & L statement. What

> > factors/elements
> > > go into calculating COG?
> > >
> > >

> >
> >

>
> It appears to me that RB, the original poster is trying to learn and may

be
> where you are, calculate COGS in a manner different from what I described?
>
> Wayne Brasch, CPA, M. S. Taxation
>
>

Beverly
Guest
Posts: n/a
Thanked:

 07-05-2004, 05:21 AM
On Sun, 4 Jul 2004 12:27:23 -0500, "RB" <(E-Mail Removed)>
wrote:

>Ummmm---a little obscure for my newbie level.
>
>To clarify, let's take the typical P & L statement. What factors/elements
>go into calculating COG?
>

In its simplest terms:

You purchase an item for \$1.00
You sell it for \$2.00

Your sales figure would be \$2.00
Your cost of goods sold would be \$1.00
Your gross margin would be the difference... \$1.00

COGS it what the items you sold cost you to buy.

It can be more complex:

The cost to AQUIRE the item for \$1.00, such as freight in, would also
be a cost of goods sold (called "landed costs" later); hence

You purchase an item for \$1.00
You paid \$0.05 in freight to get the item to you.
You sell it for \$2.00

Your sales figure would be \$2.00
Your cost of goods sold would be \$1.05
Your gross margin would be the difference... \$0.95

GENERALLY, cost of goods sold is not arrived at per item. The method
of calculating COGS (using the one item in the illustration, but is
done as a whole with all items) is:

Beginning inventory \$0.00
plus Purchases (including landed costs) \$1.05
less Ending inventory \$0.00
equals COGS \$0.95

NOTE: If you are a manufacturer, purchasing materials to transform
into something else, THEN selling them, it becomes even more complex.

_
Guest
Posts: n/a
Thanked:

 07-05-2004, 01:46 PM
> > "RB" <(E-Mail Removed)> wrote in message
> > news:J3XFc.16582\$(E-Mail Removed).. .
> > > Ummmm---a little obscure for my newbie level.
> > >

> >

> "Wayne Brasch" <(E-Mail Removed)> wrote
> It appears to me that RB, the original poster is trying to learn and

may be
> a litle confused about accounting terminology. Do accountants in

> where you are, calculate COGS in a manner different from what I

described?

No, but as you said yourself, "There may be other things to be
included in this calculation, but....."

He MIGHT be asking out of general interest.
He MIGHT be asking because he's taking a course.

Because there have been more than a few books written about inventory
and COGS, I thought it might be helpful to RB (and to those like
yourself who want to help) to narrow the scope of the question.

Wolfgang Rochow
Guest
Posts: n/a
Thanked:

 07-05-2004, 08:04 PM

"Wayne Brasch" <(E-Mail Removed)> wrote in message
news:(E-Mail Removed)...
>
> "_" <(E-Mail Removed)> wrote in message
> news:hLXFc.2608\$(E-Mail Removed).. .
> > If you ask very vague questions you are quite likely to get equally
> > vague answers which, as an admitted newbie, may seem obscure to you.
> >
> > Your clarification isn't much help.
> > Why don't you try to be very explicit, including some context or
> > background. What are you really trying to do, and why?
> >
> >
> > "RB" <(E-Mail Removed)> wrote in message
> > news:J3XFc.16582\$(E-Mail Removed).. .
> > > Ummmm---a little obscure for my newbie level.
> > >
> > > To clarify, let's take the typical P & L statement. What

> > factors/elements
> > > go into calculating COG?
> > >
> > >

> >
> >

>
> It appears to me that RB, the original poster is trying to learn and may

be
> where you are, calculate COGS in a manner different from what I described?
>
> Wayne Brasch, CPA, M. S. Taxation
>
>

I do believe that the general ground has been covered well. However, there
are variations.

Inventory valuation impacts the COGS. For example Wayne suggested a P&L
Statement presentation of
Opening Inventory + Purchases - Ending Inventory = Cost of Goods Sold (COGS)
However, COGS sold will come out differently e.g. under LIFO and FIFO
inventory calculations, assuming that acquisition costs fluctuate.

In a serialized inventory situation e.g. an automotive dealership, purchases
are generally taken immediately into Inventory in the Balance Sheet and
moved out (Dr COGS Cr Inventory) with each unit sold. In this case, the P&L
shows only a COGS but no opening or ending inventory.

Here is a compound question to the USA GAAP experts concerning Rental
Inventory and the calculation of COGS:
Consider a commercial laundry that handles table linens for the hospitality
industry. Assume that a napkin costs \$1.50 to purchase, it will survive 75
return trips through the laundry to refurbish it (return to Rental Inventory
at a refurshing cost of \$0.03), the rental price is \$0.08 for each of the 75
rental cycles; however, due to the special color of the napkin, it is
considered "seasonal" and the 75 rental cycles will occur over two fiscal
years.

1. How do you record the initial purchase.
2. What is the COGS against each \$0.08 in rental income.
3. What is the accounting treatment for the \$0.03 refurbishing cost?

Wolfgang
(E-Mail Removed) (remove contact to email)
www.gestalt.com