COGS & correcting inventory amounts

Are COGS affected at all when one manually corrects an inventory quantity?
If not, or the option to do so is not there it seems that a problem can be
created. This concern arises because if one KNOWS they bought three items, and later there is a mismatch between quantities on the POS and what is actually in stock, then failing to account for the expense of the missing items is both an accounting error and also results in higher taxable income.
Suggestions on how to track/handle this for good accounting/tax reporting are needed.
Please CC me directly in your response.
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Larry Leveen OlyBikes Bikes, Parts, Repairs & GREAT Customer Service!
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no, a manual inventory change will not affect cost, and I don't think that it should. You paid a certain amount for the items that you received, and depending on the options you selected the cost is calculated - usually as a weighted average. Shrinkage is a different issue and although it reduces the value of your inventory on hand, it does not affect the value of an individual item. If you fix the inventory counts using a Physical Inventory, you will see a summary of the change in value due to differences between expected and actual counts. This will be a handy number to enter into your general ledger as an adjustment, but RMS won't enter it for you.
With manual adjustments, all you can track is that a change was made - using the item movement history report.
Not being an accountant, I may be full of hot air on this, but that's the way I see it...
Glenn Adams Tiber Creek Consulting http://www.tibercreek.com snipped-for-privacy@tibercreek.com ---------------------------------------------- Please DO NOT respond to me directly but post all responses here in the newsgroup so that all can share the information.
OlyBikes wrote:

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I think your "hot air" is floating my proverbial accounting balloon.
Wait... I don't know what that means either...
What I am saying is that I tend to agree with Glenn. When you manally adjust the inventory, you will end up with a proper adjustment of the inventory value in the accouting system, whether manual or integrated. It will show up as shrinkage essentially. Either way, my opinion is that the inventory control system (RMS in this case) should always reflect an accurate value of the true known inventory.
To answer the original question, COGS will end up being a function of the accounting system. If you take the sales minus the change in inventory value, you will get COGS. COGS will include any inventory adjstments. In other words, having an accurate inventory value at all times is paramount.
The bottom line is that you should consult your accountant. This is the standard disclaimer - like when I "prescribe" taking lycopene for prostate health, you should cnslt your doctor.
Enjoy the ride...
Jason
"Glenn Adams [MVP - Retail Mgmt]" wrote:

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If a Physical Inventory is only done yearly, yet I want to capture GL adjustments to inventory MONTHLY, can't I just "sell" missing items in the POS with a price of zero? That way it doesn't tender anything, but DOES adjust inventory AND tracks the the cost for the missing items when I generate a COGS report at the end of the month. It's very few items, so I won't be significantly screwing up my COGS figures.
Please let me know what you think of this approach.
Thanks for CCing me directly (please!).
Jason wrote:

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I do it all of the time when I know an item is broken or stolen or otherwise obviously "lost" from inventory. I believe this to be an effective way to accurately reflect COGS on a monthly basis.
The numbers should work. The only thing you don't get is an accurate shrinkage number at the end of the year. It is hard to track your inventory losses and to make business decisions based on this.
For that reason, I set up a customer called Invenetory Adjustments. When I do a zero-price "sale" I select this customer. Then I can look at sales to this customer and see exactly what my inventory losses are costing me.
Hope this helps...
Jason
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Olybikes and Jason,
Olybikes, have you considered doing weekly/monthly cycle counts for a single department? Sometimes cuts down on employee "shrinkage"
Jason, the problem you will have is that your "Inventory Adjustment" customer doesn't show _just_ this year's COGS.
A better option might be, is to set up a Reason Code for Inventory adjustments, then select Prompt and Require a reason code for manual adjustments in the Reason Code Options section. Then modify the item's quantity direct in the properties. If you are posting to QB, it will post to the same GL account as your Physical Inventory adjustment will.
To see your cost for any timeframe, run the standard Item Movement Report and filter on your timeframe and Adjusted <>0. This will show any items adjusted for either.
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We use the Inventory adjustment with reason code as Jeff describes. The reason I wouldn't do a $0 sale is that even though it will keep track of your COGS accurately, it will show up in your Z report as COGS for the items that you sold for that day. I like to know at a quick glance what my sales for the day cost me, and entering your shrinkages this way will throw this off. By using inventory adjustments, you still get your shrinkages reported accurately, but avoid throwing off your COGS for the days sales. If you want to do it at POS that's fine, scan in the item, hit F2, go into the items properties and enter your adjustment. Pick the appropriate reason code, and you're done. Craig
Olybikes and Jason,
Olybikes, have you considered doing weekly/monthly cycle counts for a single department? Sometimes cuts down on employee "shrinkage"
Jason, the problem you will have is that your "Inventory Adjustment" customer doesn't show _just_ this year's COGS.
A better option might be, is to set up a Reason Code for Inventory adjustments, then select Prompt and Require a reason code for manual adjustments in the Reason Code Options section. Then modify the item's quantity direct in the properties. If you are posting to QB, it will post to the same GL account as your Physical Inventory adjustment will.
To see your cost for any timeframe, run the standard Item Movement Report and filter on your timeframe and Adjusted <>0. This will show any items adjusted for either.
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