Inventory Adjustments vs Inventory Shrinkage and COGS

sarkish83 · ‎March 25, 2021

Please help.

I have two categories of inventory; inventory I sell (products) and inventory I used to make my products (raw materials, packaging etc.)

The Cost of the products I sell are categorized as COGS.

I run into problems with my reports, because my inventory adjustment account is not appropriate. I have tried using: 1) COGS-supplies and materials 2) Inventory Shrinkage and BOTH of these accounts end up generating NEGATIVE values on my P&L; which isn't accurate. Which is the BEST account to link to inventory adjustment so that my P&L actually includes the COST of the raw materials we use to make our products? OR is this a redundant adjustment as we are accounting for the COST of all the raw materials and packaging into the COGS for the product we sell?

We also do an end of the month count on our raw materials inventory.

Any insight into the best way to categorize the inventory adjustment account so that our P&L is more accurate would be appreciated.

Rustler · ‎March 26, 2021

QBO is unsuited for manufacturing. It does not allow you to combine items to make something else.

The only way an adjustment expense account would show negative on the P&L is if you are increasing the qty on hand in an adjustment. Something that is rarely done.

I would suggest you buy the raw material as inventory if you stock it. Do the monthly inventory and use inventory adjust to lower the qty on hand, using the COGS account as the adjusting account.

Do not include those costs in the final product.

SimplySabrina · ‎March 26, 2021

I have the same problem.

However, I use the Bundle to create a finished product. Each bundle contains a number of raw materials to create the finished product. It works splendidly for inventory, but my Profit and Loss is skewed.

Please help!

sarkish83 · ‎March 26, 2021

Thank you, Rustler.

So after thinking this through, accounting for COGS for the final product and the COGS for the raw materials used is redundant. The solution seems to be (for me) to set the COGS for the final product as $0.00 and keep track of my COGS raw materials, packaging, labels etc.

The second part of your answer is a bit confusing to me. I DO adjust inventory and DO ADD INVENTORY when I get low on a certain raw material and purchase MORE. OR when I make FINAL product and adjust the inventory on hand to increase (which you are saying accounts for the negative inventory shrinkage/COGS (on my P&L.)

Any thoughts on the work around?

sarkish83 · ‎March 26, 2021

Interesting, I have not used the bundle feature! I keep track of COGS in an excel spreadsheet but I am so frustrated with the P&L reports through QBO.

Topics

Training

Community

Resources

Inventory Adjustments vs Inventory Shrinkage and COGS