COGS & correcting inventory amounts


O

OlyBikes

Are COGS affected at all when one manually corrects an inventory quantity?

If not, or the option to do so is not there it seems that a problem can be
created. This concern arises because if one KNOWS they bought three items,
and later there is a mismatch between quantities on the POS and what is
actually in stock, then failing to account for the expense of the missing
items is both an accounting error and also results in higher taxable income.

Suggestions on how to track/handle this for good accounting/tax reporting
are needed.

Please CC me directly in your response.

Thanks!
______________________________________________________

Larry Leveen
OlyBikes
Bikes, Parts, Repairs
& GREAT Customer Service!

124 State Avenue NE
Olympia, WA 98501

P: 360-753-7525
F: 360-528-7526
(e-mail address removed)

www.olybikes.com
Featuring free bike advocacy and safety materials!
 
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G

Glenn Adams [MVP - Retail Mgmt]

no, a manual inventory change will not affect cost, and I don't think
that it should. You paid a certain amount for the items that you
received, and depending on the options you selected the cost is
calculated - usually as a weighted average. Shrinkage is a different
issue and although it reduces the value of your inventory on hand, it
does not affect the value of an individual item. If you fix the
inventory counts using a Physical Inventory, you will see a summary of
the change in value due to differences between expected and actual
counts. This will be a handy number to enter into your general ledger
as an adjustment, but RMS won't enter it for you.

With manual adjustments, all you can track is that a change was made -
using the item movement history report.

Not being an accountant, I may be full of hot air on this, but that's
the way I see it...

Glenn Adams
Tiber Creek Consulting
http://www.tibercreek.com
(e-mail address removed)
 
J

Jason

I think your "hot air" is floating my proverbial accounting balloon.

Wait... I don't know what that means either...

What I am saying is that I tend to agree with Glenn. When you manally adjust
the inventory, you will end up with a proper adjustment of the inventory
value in the accouting system, whether manual or integrated. It will show up
as shrinkage essentially. Either way, my opinion is that the inventory
control system (RMS in this case) should always reflect an accurate value of
the true known inventory.

To answer the original question, COGS will end up being a function of the
accounting system. If you take the sales minus the change in inventory value,
you will get COGS. COGS will include any inventory adjstments. In other
words, having an accurate inventory value at all times is paramount.

The bottom line is that you should consult your accountant. This is the
standard disclaimer - like when I "prescribe" taking lycopene for prostate
health, you should cnslt your doctor.

Enjoy the ride...

Jason
 
O

OlyBikes

If a Physical Inventory is only done yearly, yet I want to capture GL
adjustments to inventory MONTHLY, can't I just "sell" missing items in the
POS with a price of zero? That way it doesn't tender anything, but DOES
adjust inventory AND tracks the the cost for the missing items when I
generate a COGS report at the end of the month. It's very few items, so I
won't be significantly screwing up my COGS figures.

Please let me know what you think of this approach.

Thanks for CCing me directly (please!).

I think your "hot air" is floating my proverbial accounting balloon.

Wait... I don't know what that means either...

What I am saying is that I tend to agree with Glenn. When you manally
adjust the inventory, you will end up with a proper adjustment of the
inventory value in the accouting system, whether manual or
integrated. It will show up as shrinkage essentially. Either way, my
opinion is that the inventory control system (RMS in this case)
should always reflect an accurate value of the true known inventory.

To answer the original question, COGS will end up being a function of
the accounting system. If you take the sales minus the change in
inventory value, you will get COGS. COGS will include any inventory
adjstments. In other words, having an accurate inventory value at all
times is paramount.

The bottom line is that you should consult your accountant. This is
the standard disclaimer - like when I "prescribe" taking lycopene for
prostate health, you should cnslt your doctor.

Enjoy the ride...

Jason
--



______________________________________________________

Larry Leveen
OlyBikes
Bikes, Parts, Repairs
& GREAT Customer Service!

124 State Avenue NE
Olympia, WA 98501

P: 360-753-7525
F: 360-528-7526
(e-mail address removed)

www.olybikes.com
Featuring free bike advocacy and safety materials!
 
J

Jason

I do it all of the time when I know an item is broken or stolen or otherwise
obviously "lost" from inventory. I believe this to be an effective way to
accurately reflect COGS on a monthly basis.

The numbers should work. The only thing you don't get is an accurate
shrinkage number at the end of the year. It is hard to track your inventory
losses and to make business decisions based on this.

For that reason, I set up a customer called Invenetory Adjustments. When I
do a zero-price "sale" I select this customer. Then I can look at sales to
this customer and see exactly what my inventory losses are costing me.

Hope this helps...

Jason
 
J

Jeff

Olybikes and Jason,

Olybikes, have you considered doing weekly/monthly cycle counts for a single department? Sometimes cuts down on employee "shrinkage"

Jason, the problem you will have is that your "Inventory Adjustment" customer doesn't show _just_ this year's COGS.

A better option might be, is to set up a Reason Code for Inventory adjustments, then select Prompt and Require a reason code for manual adjustments in the Reason Code Options section. Then modify the item's quantity direct in the properties. If you are posting to QB, it will post to the same GL account as your Physical Inventory adjustment will.

To see your cost for any timeframe, run the standard Item Movement Report and filter on your timeframe and Adjusted <>0. This will show any items adjusted for either.



I do it all of the time when I know an item is broken or stolen or otherwise
obviously "lost" from inventory. I believe this to be an effective way to
accurately reflect COGS on a monthly basis.

The numbers should work. The only thing you don't get is an accurate
shrinkage number at the end of the year. It is hard to track your inventory
losses and to make business decisions based on this.

For that reason, I set up a customer called Invenetory Adjustments. When I
do a zero-price "sale" I select this customer. Then I can look at sales to
this customer and see exactly what my inventory losses are costing me.

Hope this helps...

Jason
 
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C

Craig

We use the Inventory adjustment with reason code as Jeff describes. The
reason I wouldn't do a $0 sale is that even though it will keep track of
your COGS accurately, it will show up in your Z report as COGS for the items
that you sold for that day. I like to know at a quick glance what my sales
for the day cost me, and entering your shrinkages this way will throw this
off. By using inventory adjustments, you still get your shrinkages reported
accurately, but avoid throwing off your COGS for the days sales. If you want
to do it at POS that's fine, scan in the item, hit F2, go into the items
properties and enter your adjustment. Pick the appropriate reason code, and
you're done.
Craig
Olybikes and Jason,

Olybikes, have you considered doing weekly/monthly cycle counts for a single
department? Sometimes cuts down on employee "shrinkage"

Jason, the problem you will have is that your "Inventory Adjustment"
customer doesn't show _just_ this year's COGS.

A better option might be, is to set up a Reason Code for Inventory
adjustments, then select Prompt and Require a reason code for manual
adjustments in the Reason Code Options section. Then modify the item's
quantity direct in the properties. If you are posting to QB, it will post
to the same GL account as your Physical Inventory adjustment will.

To see your cost for any timeframe, run the standard Item Movement Report
and filter on your timeframe and Adjusted <>0. This will show any items
adjusted for either.



I do it all of the time when I know an item is broken or stolen or otherwise
obviously "lost" from inventory. I believe this to be an effective way to
accurately reflect COGS on a monthly basis.

The numbers should work. The only thing you don't get is an accurate
shrinkage number at the end of the year. It is hard to track your inventory
losses and to make business decisions based on this.

For that reason, I set up a customer called Invenetory Adjustments. When I
do a zero-price "sale" I select this customer. Then I can look at sales to
this customer and see exactly what my inventory losses are costing me.

Hope this helps...

Jason
 

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