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- Jun 27, 2013
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Hi all,
I'm new here, and I have a question that is just burning a hole in my head :
I have not done accounting for a little over 4 years, so I'm a little bit rusty.
I still remember the basic principles though. I am starting a business running a thrift/second hand store. Therefore, I am buying merchandise, and selling it for more than I paid for it. I'm struggling with figuring out how I want to handle tracking my inventory worth.
I understand the basic transaction of buying inventory-
Inventory 400
Cash 400
Now here's where I start really scratching my head(I'm sure it's just because I haven't done this in so long)
I am not tracking the per piece cost of anything, usually because I buy things in lots for one set price; a storage unit may cost me $250, but contain over 300 items.
Now, question #1 :
Should I instantly adjust my inventory worth to market value?
If I don't do this, then when I try to calculate COGS, how do I judge the value of my ending inventory? I will have to place a value on it, and it's much easier and more stable to place a market value on it(what i'd be able to sell it for).
My biggest issues comes from adjusting inventory when I'm making the sale.
for example :
cash 500
sales 500
I may have only paid $150 for the lot that that $500 item just came from, so how would i accurately adjust my inventory to reflect the decrease?
Obviously I can't decrease the worth by 500, because I'll always end up with a negative inventory as long as I'm selling things for more than I paid for them.
I'm just honestly not sure if I should purchase my inventory, debit inventory credit cash, and then do a weekly/monthly audit to adjust the inventory to the actual market value.
and just to verify on this :
I currently have two accounts created for this :
Inventory Valuation Gain - which I have as an income account
Inventory Valuation Loss - which is an expense account.
Obviously, depending on if I'm adjusting my inventory worth to be higher or lower, inventory may be either a debit or credit.
Now, this does all equal out in the end, but I don't know if it's good practice to do this because on my income statement, i will show my increases and decreases accordingly on the income and expense accounts, and, just for the illustration of the scenario, if I could perfectly guess the sale price of each product, and do my initial adjustment to raise the worth to that price, then I'd always equal out on my sales becuase my inventory loss account would negate that by taking it right out of my net income.
I mean, all in all, I'd still have that cash sitting my asset account, but the income statment would show little, no, or maybe even sometimes negative, net income, even if I had a great month.
I'm new here, and I have a question that is just burning a hole in my head :
I have not done accounting for a little over 4 years, so I'm a little bit rusty.
I still remember the basic principles though. I am starting a business running a thrift/second hand store. Therefore, I am buying merchandise, and selling it for more than I paid for it. I'm struggling with figuring out how I want to handle tracking my inventory worth.
I understand the basic transaction of buying inventory-
Inventory 400
Cash 400
Now here's where I start really scratching my head(I'm sure it's just because I haven't done this in so long)
I am not tracking the per piece cost of anything, usually because I buy things in lots for one set price; a storage unit may cost me $250, but contain over 300 items.
Now, question #1 :
Should I instantly adjust my inventory worth to market value?
If I don't do this, then when I try to calculate COGS, how do I judge the value of my ending inventory? I will have to place a value on it, and it's much easier and more stable to place a market value on it(what i'd be able to sell it for).
My biggest issues comes from adjusting inventory when I'm making the sale.
for example :
cash 500
sales 500
I may have only paid $150 for the lot that that $500 item just came from, so how would i accurately adjust my inventory to reflect the decrease?
Obviously I can't decrease the worth by 500, because I'll always end up with a negative inventory as long as I'm selling things for more than I paid for them.
I'm just honestly not sure if I should purchase my inventory, debit inventory credit cash, and then do a weekly/monthly audit to adjust the inventory to the actual market value.
and just to verify on this :
I currently have two accounts created for this :
Inventory Valuation Gain - which I have as an income account
Inventory Valuation Loss - which is an expense account.
Obviously, depending on if I'm adjusting my inventory worth to be higher or lower, inventory may be either a debit or credit.
Now, this does all equal out in the end, but I don't know if it's good practice to do this because on my income statement, i will show my increases and decreases accordingly on the income and expense accounts, and, just for the illustration of the scenario, if I could perfectly guess the sale price of each product, and do my initial adjustment to raise the worth to that price, then I'd always equal out on my sales becuase my inventory loss account would negate that by taking it right out of my net income.
I mean, all in all, I'd still have that cash sitting my asset account, but the income statment would show little, no, or maybe even sometimes negative, net income, even if I had a great month.
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