These all need to be counted and tracked in your inventory accounting system.Īnd since you generally pay workers and maintain machines to manufacture the shoes, you will have to record not only the cost of your raw materials in your inventory, but also the cost of labor and machine maintenance and repairs. These are questions you have to answer as you set up your inventory accounting system.Īnd for businesses with complex production processes, inventory accounting can become much more involved and industry-specific.įor example, if you’re a manufacturing company such as a company that makes shoes to sell to shoe stores, your inventory exists in three different forms-raw goods, work-in-progress products, and finished items. an average cost of all the pairs of this type of shoe you bought (average cost method)?.the cost of the last pair of this type of shoes you bought (LIFO method), or.the cost of the first pair of this type of shoes you bought (FIFO method),.For example, what if you sold a pair of shoes-but your cost for these shoes recently increased significantly due to increased international shipping costs? Do you determine your cost of these shoes based on: Of course, determining the cost of the shoes you just sold may require more complicated accounting processes than you may think. debit your cost of goods sold account for the cost of the shoes you just sold.credit your inventory account for the cost of the shoes that you just sold, and.credit your revenue account for the amount of the sale,.debit your cash or accounts receivable account for the amount of the sale,.credit either your cash account or accounts payable account, depending on how you purchased the shoes.Īnd then when you sell shoes to your customers, you:.When you purchase the shoes from a manufacturer or wholesaler, you: If you own a merchandising business-for example, a shoe store that purchases shoes from manufacturers or wholesalers and sells these shoes to consumers-your inventory accounting system is somewhat straightforward. gradually move to the cost of goods sold account as an expense on the profit and loss statement as your business makes sales to customers. initially be recorded in the inventory account as an asset on the balance sheet and.The core tenet of most inventory accounting systems is that all costs incurred to produce or acquire goods that will be sold for a profit should: Inventory accounting is how you account for and value the inventory in your business.
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