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I have an accounting conundrum. I'm using Quickbooks Enterprise with Advance inventory, selling inventory items.
I work in the cannabis industry and we have flower vendors that offer us terms on their goods that essentially amount to consignment terms, but we need to show them on the books with a COGS model. Meaning if I sell something for $1000 and pay $800 for it, I want my income account to show the $1000 and my COGS account to show $800. then my net income on a P&L shows $200
For the majority of goods where we have a static cost, this is fine and easy. However, we have flower that we sell at variable rates and we pay for them based on a margin. For example, we have flower that we advertise at $2000/lb but have wriggle room to sell as low as $1900/lb. Our cost on these items is based on a margin. For this example we will say we have a 10% sales margin for easy numbers. (we are a wholesaler so we have slim margins)
If I create the items with a cost of 1800 and sales price of 2000, then when I invoice an item, I have 2000 posting to my income account and 1800 to my COGS account. The problem arises when I sell the item at my low price of 1900 but my COGS still post at 1800. Since I pay the vendor a percentage of sales, and we pay based on cash basis sales reports, then I have to do an incredible amount of work to calculate these payments every time and enter discounts to offset the COGS difference because QB gives me no way to make my cost a percentage of the sales price. When I have a bill for ten lbs. at 1800 and I've sold 5 of them at full price of 2000 and 5 at low price of 1900, now my bill should be adjusted to be 5x1800 + 5x1710. Doing these bill adjustments every time is not at all feasible so my method is to run a cash-basis sales report. multiply the total sales by .9 to establish what I owe the vendor, then calculate the difference between that number and my COGS on the item and enter a discount on the bill to offset the COGS difference. All of this process takes way too long and can get a little confusing when trying to explain to my vendors.
So I'm looking for a new method. My thought is to enter my items with zero cost and have them post to a temporary income account, or maybe a liability account. Then I can run a quick report on this special account and make a payment to my vendor from this income account for the 90% that I owe them and move the remaining 10% into my usual income account. Sounds simple enough in theory but it creates all kinds of imbalances. One in particular is that I have no cost associated with my items so now my inventory valuation is off. Also I have no bill for the items so I have no AP balance. I need a solution to this problem because my current method takes way to long to calculate when I'm making weekly payments to vendors and I have to pull their file and compare last week's report to this week's report. I'm amazed that there is not a simple solution for this type of sales model. Perhaps it is just not a common occurrence for business to have sliding scale sales numbers and pay based on a margin.
The more I think about it the more it makes my head ache. Maybe the solution is to enter them as I normally would and create a other charge item that discounts the COGS account and Income account in one transaction.
I would love to hear some ideas
I work in the cannabis industry and we have flower vendors that offer us terms on their goods that essentially amount to consignment terms, but we need to show them on the books with a COGS model. Meaning if I sell something for $1000 and pay $800 for it, I want my income account to show the $1000 and my COGS account to show $800. then my net income on a P&L shows $200
For the majority of goods where we have a static cost, this is fine and easy. However, we have flower that we sell at variable rates and we pay for them based on a margin. For example, we have flower that we advertise at $2000/lb but have wriggle room to sell as low as $1900/lb. Our cost on these items is based on a margin. For this example we will say we have a 10% sales margin for easy numbers. (we are a wholesaler so we have slim margins)
If I create the items with a cost of 1800 and sales price of 2000, then when I invoice an item, I have 2000 posting to my income account and 1800 to my COGS account. The problem arises when I sell the item at my low price of 1900 but my COGS still post at 1800. Since I pay the vendor a percentage of sales, and we pay based on cash basis sales reports, then I have to do an incredible amount of work to calculate these payments every time and enter discounts to offset the COGS difference because QB gives me no way to make my cost a percentage of the sales price. When I have a bill for ten lbs. at 1800 and I've sold 5 of them at full price of 2000 and 5 at low price of 1900, now my bill should be adjusted to be 5x1800 + 5x1710. Doing these bill adjustments every time is not at all feasible so my method is to run a cash-basis sales report. multiply the total sales by .9 to establish what I owe the vendor, then calculate the difference between that number and my COGS on the item and enter a discount on the bill to offset the COGS difference. All of this process takes way too long and can get a little confusing when trying to explain to my vendors.
So I'm looking for a new method. My thought is to enter my items with zero cost and have them post to a temporary income account, or maybe a liability account. Then I can run a quick report on this special account and make a payment to my vendor from this income account for the 90% that I owe them and move the remaining 10% into my usual income account. Sounds simple enough in theory but it creates all kinds of imbalances. One in particular is that I have no cost associated with my items so now my inventory valuation is off. Also I have no bill for the items so I have no AP balance. I need a solution to this problem because my current method takes way to long to calculate when I'm making weekly payments to vendors and I have to pull their file and compare last week's report to this week's report. I'm amazed that there is not a simple solution for this type of sales model. Perhaps it is just not a common occurrence for business to have sliding scale sales numbers and pay based on a margin.
The more I think about it the more it makes my head ache. Maybe the solution is to enter them as I normally would and create a other charge item that discounts the COGS account and Income account in one transaction.
I would love to hear some ideas
