Inventory and COGS

Welcome to the Community, AccountR! Accounting for a brewery can have unique challenges, but we can definitely sort this out together.

Before we dive into a solution, I'd like to clarify a few details to ensure I fully understand your situation. Could you explain how you entered the cost per can so that it appears on your balance sheet? If possible, you can attach a screenshot in your reply. The more details you provide about how you account for these expenses, the better I can assist you with an accurate resolution.

In QuickBooks Online (QBO), additional entries aren't necessary if you use inventory items and map them to Cost of Goods Sold (COGS) and income accounts. QBO's inventory tracking allows you to record the cost of items upon purchase and then automatically move those costs to COGS when you sell the items. This ensures your financial reports accurately reflect your Balance Sheet and Profit & Loss (P&L) statement. Essentially, QBO manages COGS and inventory seamlessly, reducing inventory and adjusting COGS with each sales transaction.

Moreover, COGS is only affected when you make a sale, not when you enter a bill for purchasing inventory. When you enter a bill to record the purchase of ingredients, the accounts impacted are Accounts Payable and Inventory Asset. Since you've already entered invoices for the cost of producing cans, there's no need to re-enter the cost. Doing so would result in overstated expenses.

You may browse these articles for comprehensive information on COGS and inventory tracking in QBO:

• Understand inventory assets and cost of goods sold tracking
• Cost of Goods Sold: Defining & Calculating COGS
• Set up and track your inventory in QuickBooks Online

To help you manage your brewery's sales and inventory moving forward, here's a guide on running reports: Use reports to see your sales and inventory status in QuickBooks Online.

I'm looking forward to hearing from you and helping you get everything on track. If you have any other questions or need more guidance on tracking inventory or managing your COGS, don't hesitate to reach out. With the right set up, we can ensure your books stay as smooth as your best batch. Keep safe!

@AccountR 

You should have an inventory management app with the assembly feature or a manufacturing app to integrate with QBO.

Hi! Thank you for your reply. I entered cost per can by going into sales-products and services-clicking edit on our inventory item (can of beer)-and entering a cost. Then as long as the item is in stock, it is reflected as an inventory asset at cost. The cost per can is predetermined by the breakdown of raw material expenses. 

The issue about recording cogs when purchased is for example, we will purchase $5000 worth of cans, $7000 worth of ingredients, and $1000 worth of beer gas, which we record as bill and mark the bill as paid, but we havent actually sold those raw materials yet. so in theory, it should be an asset, but it gets converted to cans of beer and sold over time.

I was thinking potentially I could enter a journal entry every week to debit what is in stock for inventory (to reflect on the balance sheet) and credit COGS (to reduce what is being expensed, until it is sold). Then I could adjust moving forward weekly. Would that be okay? We sell cans through our store (which come through to QB from our sales app), as well as to licensees (which we invoice from QB ourselves), so it would be difficult to manage which cans are sold vs what is in stock using QB only. 

Do you have a specific app recommendation?

@AccountR 

"These purchases are expensed and reflected on the P&L report. Obviously these purchases make up the cost of the can of beer. This is where the problem comes into play."

I would suggest you get in touch with a good accountant/CPA or look at something like Ollie or Small Batch Standard.  Have you done that?  When you purchase supplies for producing beer, those costs are not expenses until the beer is sold.  Those costs should not be an expense when purchased, they should be capitalized into inventory then converted to finished goods when completed and then expensed to COGS when sold.   

@AccountR 

If your assembly process is simple, you can check Zoho

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Otherwise, Katana is a better option.

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