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Hi everyone,
This is my first post here and I have a bit of a dilemma on how to properly set up a new piece of inventory we have. For reference, I work in the steel machining industry and we have a new type of metal that we are trying to introduce to our product line.
We currently have the metal sitting on our floor. The terms are set up as an introductory consignment period until next year at which time we will be billed with 60 day terms. If we do not use any of it, we have to pay for all of it by next February.
My issue is that we do not know what type of demand we are going to get for this metal. Right now the terms are set up in away that if we cut into the piece of metal, we owe on that piece within 90 days. If we use NONE of the metal before next year, we owe on all of it next year.
My thoughts are that this isn't true consignment because we will have to pay for it no matter what. There is no shipping it back to the supplier but we don't technically have the "title" to the asset.
How would you guys set up this in your accounting system. Would you treat this as consignment inventory or set it up in inventory and call the payable something like "long term inventory financing". I realize there is a slight mismatch of LT liabilities vs current assets but I have never seen inventory put into LT assets and I doubt anyone above me would support such a designation.
Any help or experience would be greatly appreciated. If you need more details to give a more educated opinion, please ask.
This is my first post here and I have a bit of a dilemma on how to properly set up a new piece of inventory we have. For reference, I work in the steel machining industry and we have a new type of metal that we are trying to introduce to our product line.
We currently have the metal sitting on our floor. The terms are set up as an introductory consignment period until next year at which time we will be billed with 60 day terms. If we do not use any of it, we have to pay for all of it by next February.
My issue is that we do not know what type of demand we are going to get for this metal. Right now the terms are set up in away that if we cut into the piece of metal, we owe on that piece within 90 days. If we use NONE of the metal before next year, we owe on all of it next year.
My thoughts are that this isn't true consignment because we will have to pay for it no matter what. There is no shipping it back to the supplier but we don't technically have the "title" to the asset.
How would you guys set up this in your accounting system. Would you treat this as consignment inventory or set it up in inventory and call the payable something like "long term inventory financing". I realize there is a slight mismatch of LT liabilities vs current assets but I have never seen inventory put into LT assets and I doubt anyone above me would support such a designation.
Any help or experience would be greatly appreciated. If you need more details to give a more educated opinion, please ask.