Hi. Can someone please give me clarification on how to record inventory given for promotional purposes?

cmammay · ‎October 15, 2018

I need to track the customers that received the promotional inventory as well as the inventory itself. Would it be considered a Sales Discount? I am confused. It seems that it would be a promotional expense, but how can I record it as that and then account for the COGS? Thanks in advance.

Rustler · ‎October 15, 2018

Freebies with a sale, you should use two item lines

widget, qty 20, $$$
widget, qty 3, $0.00

When you use a negative number for qty, that puts the item back in inventory and pulls the average cost out of COGS

But to track promotional items, given away over the counter so to speak, use inventory adjust, set the adjusting account to promotional expense, and lower the qty - then the cost of the items hit the promotional expense account as they should.

There is no alias function in QB inventory, so you can not make a giveaway item that will affect qty on hand, and you can not just assign a cost to any item with out that cost coming from some account.

View solution in original post

Rustler · ‎October 15, 2018

Freebies with a sale, you should use two item lines

widget, qty 20, $$$
widget, qty 3, $0.00

When you use a negative number for qty, that puts the item back in inventory and pulls the average cost out of COGS

But to track promotional items, given away over the counter so to speak, use inventory adjust, set the adjusting account to promotional expense, and lower the qty - then the cost of the items hit the promotional expense account as they should.

There is no alias function in QB inventory, so you can not make a giveaway item that will affect qty on hand, and you can not just assign a cost to any item with out that cost coming from some account.

cmammay · ‎October 15, 2018

Thank you. I really appreciate your help.

Rustler · ‎October 15, 2018

You're Welcome

cmammay · ‎October 15, 2018

Would it be possible or accurate to maybe add a sub-account to COGS and name it Promotional Merchandise to track the promotional expense? I have to pay taxes and inbound shipping. I have already spoken to the owner regarding the Resale Certificate/Permit, and he said he could not use one. The products are given directly to the customer, so there is no shipping charge and taxes is not charged. All of the inventory is the same, sometimes it is sold and sometimes it is given away for someone to test it and see if they will become a customer. It seems inaccurate to debit the expense to Promotional Expenses and accurately account for the inbound shipping and the taxes that was already paid.

Rustler · ‎October 15, 2018

actually inbound shipping, taxes paid, or any other fee paid to get an item on hand and or get it ready for sale is part of item cost - per the IRS.

Yes, technically if the item was purchased this fiscal year it can post to COGS, if it was purchased last fiscal year technically it has to be promotional expense, but I doubt any auditor will delve that deeply into things

cmammay · ‎October 15, 2018

When I enter the product into the bill, I do include the inbound shipping and taxes as part of the item cost. After the product is sold, I have my COGS broken down into sub-accounts to keep track of the inbound shipping and taxes separately. It will all total into the parent account and should equal the the amount of the inventory + the profit. Is that accurate? Thank you for all of your responses. I have two accounts, and you have helped tremendously.

Rustler · ‎October 15, 2018

yes all costs to get an item on hand and/o ready for sale are part of item cost

No cogs does not equal inventory + profit. Cogs is cost, sales price posts to income, on teh P&L income is reduced by expense to get net taxable profit

ncwc_acct · ‎October 15, 2018

Thank you. I actually thought about that after I posted the comment. Debit Cash or Accounts Receivable and Credit Revenue. Debit COGS and Credit Inventory. I should have asked if it is accurate to break down the COGS into sub-accounts in order to keep track of inbound shipping and taxes paid separately. I have the parent account named COGS and three sub-accounts, Merchandise, Inbound Shipping, and Taxes Paid. The parent account will equal the amount entered into the inventory item when creating the bill. I have already allocated the total cost of each item to include both inbound shipping and the taxes paid. Is it completely unnecessary to track those amounts separately because they are no longer considered separate according to the IRS? I think I read somewhere that taxes paid could be written off on income taxes. If that is correct, then it now seems unnecessary to use COGS for promotional items at all. I hope I am making sense. Thank you again.

Rustler · ‎October 15, 2018

Can you do it that way with cogs sub accounts - sure

Here is the issue, at year end you have value in those shipping, tax COGS accounts for items not sold. To report correctly you would have to calculate how much in each account is related to each item on hand, journal that value to an asset account for year end numbers for income tax, then start of the year journal them back to COGS. That is the technically right way to do that.

Now is an auditor going to key in that excess amount being an expense lower net taxable profit - logic say sit depends on his mood, how much it is, and what else he has found.

And if you posted a significant amount to shipping and tax at the EOY, next year those items would sell at a 100% profit for those expense categories.

ncwc_acct · ‎October 15, 2018

Thank you!

eye311 · ‎October 15, 2018

For example, say we have a product "CCB - coffee cups blue". COGs is $2 and normal sale price is $3. Customer A buys 20 and we add 3 promotional to the order. So we ship 23. The Invoice has CCB Qty 23 - $3 = $69. We add a line Promotional DIscount Qty 3 at $3. Net amount due is 60. 23 CCB's hit COGS so COGS records $46.

Another approach would be to create a separate part code for the promotional items. CCB-Promo. You set that up with COGs $2 and sale price $0. In that case your invoice to the customer would have Qty 20 CCB @$3 and Qty 3 CCB-Promo at $0.

Both approaches will properly record to the income and balance sheet. It depends how much detail you want to retain about your promotional expense - total expense, or total expense plus unit quantity.

cmammay · ‎October 15, 2018

Thank you.

Topics

Training

Community

Resources

Hi. Can someone please give me clarification on how to record inventory given for promotional purposes?