Inventory Accounting Question - Its there but not really...

I work for my family business. We have a large inventory of automotive parts. We buy two kinds of inventory. The first kind is a single complete item, say one pan gasket. The accounting for this is simple. We buy the part and our Inventory Asset account is increased. When we sell the item the Inventory Asset account is decreased and the COGS account is increased. No questions there.

The second kind of inventory we buy is a "kit" of individual items; say one kit would have 30 different items that range from pan gaskets to seals to filters. These individual items can and are purchased individually as single complete items as described above, but not all items are purchased separately.

The kit is used in our jobs and sold to the customers. Thus the accounting for this would be the same as for a single item, that is when we buy the kit our Inventory Asset account is increased. When we sell the kit the Inventory Asset account is decreased and the COGS account is increased.

Here is the kicker, not every item in the kit is actually used in a job that is sold to the customer. Since some of the kit items are not used they are placed in a surplus box and kept as backup for future use. So in theory the Inventory Asset account and the COGS account can not be increased/decreased by the full cost of the kit, correct or incorrect?

Would it be okay to fully increase/decrease the Inventory Asset account and COGS account by the full cost of the kit? This would in theory mean 100% of the kit was used when sold to the customer, but in reality not all 100% of the kit items were used. So how do I then account for these left over items that are still in inventory but on paper don't really exist? I want to be as accurate as possible but not have to be bogged down with extra paper work and time doing so. Any thoughts or suggestions? I have tried to be as specific as possible, but please let me know if you have any questions. Thanks. My email is snipped-for-privacy@aol.com.

Reply to
Nelson
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Count the items periodically (monthly?) and add them to inventory by an Inventory Adjustment (reducing COGS).

automotive

simple.

incorrect?

account

reality

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!-!

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