My mind is getting confused around the COGS adjustment.
For Drug Administration services, you buy a drug from a vendor or distributor whose payment terms are 30-90 days. When you have a patient, you sale the drug to the patient. However, revenue is received in different A/R (60% in 45 days, 30% in 90 days, 25% >180 days). The drug when received is assigned to liability and moved to COGS expense when paid according to payment terms.
Do I need to make monthly or annual adjustment to COGS?
If I adjust the COGS monthly, I am running into issues where I ending up adjusting either too high or too low. Because, the the drug is paid to the vendor and the payment from service is not received until 45 days.
If I don't adjust regularly, my net income would likely increase as I'm paying for drugs as agreed and received payment in part from insurance at different cycle.
I don't feel that my adjustment represent true nature of profit or is accurate.
Does anyone have expertise in cash accounting for COGS for medical infusion services?
