inventory and cost of goods sold

rrgg · ‎January 14, 2019

my client is a non-profit school. they charge tuition for each student. and each student get textbooks after paying tuition. My questions is when they purchase textbooks for students, do the textbooks go to inventory? If they manage the inventory by counting beginning and ending inventory and calculate cost of goods sold based on beg. inventory plus purchases minus ending inventory, should they have cost of goods sold account or all the textbook purchases cost go to expenses when they occur. I am confused as they seem do not have a real sales of textbooks, so from that perspective, no need to have cost of goods sold account and no need to have inventory. but they do have ending balance of textbooks at year end and it seems that an inventory management system is necessary. How should I treat this situation? Thank you very much!

Rustler · ‎January 15, 2019

Well you are selling textbooks, they are just included in a flat rate price for them and the service.

If you have QBO Plus then you can choose to use inventory items for the books, which would be my choice. Or you can use periodic inventory.

There are two ways to do periodic inventory, choose one and stick with it, you can not mix and match

1. (my preference) Create an asset account called purchases and post all purchases of item for resale to that account. Periodically, weekly, monthly, etc value the inventory on hand, subtract that value from the amount shown in the purchases account and do a journal entry for the answer to the subtraction
debit COGS for that value
credit purchases for that value

OR

2. Post all purchases to COGS. Periodically, but at least at the end of the year, you value the inventory on hand and do a journal entry.
debit the asset purchases account for that value
credit COGS for that value

Print the P&L
then reverse the journal entry
debit COGS for that same value
credit the asset purchases account for that value

This last journal entry, moves the value of what was on hand at the end of year back to COGS so the cost will be counted against the new year sales.

rrgg · ‎January 15, 2019

Thanks for your advise. a followup question is if I treat part of the tuition as textbook sales, how much is the price of the textbooks? Just the cost of the textbooks based on purchase order? as the school does not have a breakdown of the tuition into textbooks and teaching fee.

Thanks.

HOW TO SYNC ANOTHER LOCATION · ‎March 09, 2023

Hello Ruslter! Thank you for this reply to someone inventory and cogs. I used this method it makes the most sense. Making the journal entry and do the reverse is perfect.

I have a question if I do a year end journal, how are spoiles and theft processed? Taken out of cogs and to an expense account? Or track and at the end of the year reduce the cogs. I can't wrap my brain around it. You repsonse is appreciated. I tried to look on your website, didn't find this topic.

Thnak you for all you do!

Debbie R.

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