So I order in stock from supplier and raise a purchase invoice. On it I list the items purchased and the shipping charge and paypal cost as separate entries, which reflect the customer’s invoice.
I add the items purchased to the inventory as they now become assets but how do I account for the shipping and paypal costs. Obviously I want to incorporate these costs into the purchased products so I get a true representation of the cost to my company. Or do I just record these as expenses?
If I record them as expenses and then sell the goods with my profit margin set to cover the expense of shipping then it seems to me that my overall profit on the asset when sold is higher than it is in reality.
How should I record this to reflect properly in the inventory?
I would also like to know how I can add customs duty to the cost of my purchased products. I’m billed by customs when clearing the goods but it won’t go into the purchase invoice. If I enter it as an expense then the profit margin per product will be calculated without the duty.
That’s right. How many different items do you have on single purchase invoice? Quick solution would be to inflate Unit price when recording purchase invoice to account for shipping cost and other fees but I assume that would be very time consuming right? Not to mention issues with rounding. How about being able to attribute shipping and other costs to each inventory item type separately?
For example, if you receive “Item A” and “Item B”, first you record qty and unit price as you usually do and then record shipping cost for “Item A” and “Item B” separately without specifying quantity, just total amount per each item type. Would that work?
It’s for Australia but principle is the same for any country. Also use Inventory on hand account instead of Printing & stationery since you need this for inventory.
I think that sounds pretty good. at the moment I have to use a spreadsheet. i enter all my items on it and make various calculations on the shipping figure. Currently I use the weight of each item as a proportion of the total weight and apply that percentage to the shipping cost. i then add this cost to the cost of the item.
When it’s a lot of items on the purchase invoice it becomes a pain. But looking at this it would also be difficult to implement in the existing inventory module!
I was looking into other accounting systems how they handle capitalization of expenses for inventory items and it seems like there is really no easy way out rather than various manual approaches based on volume of transactions. (I didn’t like any approach I’ve seen so far)
Perhaps one solution would be to enable some option in the program that would allow you to set ratio for each inventory item (e.g. weight) which means expense capitalization entry could be generated automatically based on quantity of purchased inventory items. I’m just thinking loud here but this would be one way that could work without relying on time-consuming spreadsheet calculations.
This would be an ideal solution for me but I think that many people will have different methods for calculating their costs other than just by weight. But, on the other hand, as I’ve not seen mention of this issue previously, I’d like to see this option incorporated sometime in the future, it would certainly help me.
I have the same issue for my inventory (shipping, paypal, and duty). Perhaps like Lubos mentioned, something like being able to include it directly in the purchase invoice and then have it allocate the cost of each based on percentage of added costs?
What I do manually in excel is generate percentages of individual items purchased and then apply it to shipping and paypal, and then after it clears customs, I use the same percentage to divide up duty, in local currency. I think this could work with a variety for lots of people, as it is percentage based.
I realize this is an old thread, but couldn’t find a recent one that addressed this issue. I buy raw materials and create finished products. The Inventory module is critical since I rely on the cost of inventory items to price my finished product.
For each Purchase Invoice, I have to divide the shipping cost by the sub-total to get a number that I multiply against each new inventory item. That number is then added to the cost of each item to apply a prorated share of the shipping cost. This becomes tedious when a purchase includes several items.
A variation of the Purchase Invoice could possibly resolve this issue with the addition of Shipping, Subtotal and Total fields that worked with the existing Price field. (Tax and Handling Charges might also be helpful to some.)
@devan, even if there would be a field for extra cost to be spread across purchased inventory items, how would you prefer this cost to be spread across multiple inventory items? Proportionally by purchase cost?
Yes. For example: My invoice contains two items with a cost of $100 and $20, respectively. After dividing the shipping cost of $5 with the $120 subtotal, I multiply the quotient of .04166 against the cost of each item to get the proportional shipping cost (which I add to the item’s final cost). I haven’t yet paid any tax or shipping expense yet, but those fields might also be helpful for some.
I wrote a small VB function to do this for me before entering it into Manager. But it appears that a built-in function similar to this would be helpful for others who use inventory items to manufacture products. It would also be a great feature for anyone who makes and sells craft items (i.e., most who sell on Etsy).
I think one elegant solution would be to add some pseudo “inventory item” which if you select on purchase invoice, then the amount allocated to this pseudo item will be actually spread over to real inventory items.
Now the question is, what to call this pseudo inventory item… any suggestions? Let’s not call it “Shipping” or something too specific. I’m looking for some more generic term.
Aside from something very generic such as “Other Costs”, I do like Tut’s “Freight-in” suggestion. That term is mentioned in IRS Pub. 334, Tax Guide for Small Business as a Schedule C, Line 39 item in figuring COGS.
Hi.
I also use freight, but need it to be allocated to the purchased items by proportional weight of the individual items, as the freight cost is calculated on weight. Iurchase a lot of different small items and if I do not allocate accordingly, the heavier items do not pick up the correct cost. I do this on a spreadsheet before entering my purchases.
Possible or far-fetched?
So what if inventory B is composed of 1000 items and A only 2 items? Will it be fair. And B is heavier and takes more space will it be fair?
I am for spreading it based on quantity on board
I guess it can depend on the type of products you are purchasing. Each item I buy weighs under 5 lbs., involves flat-rate shipping and the cost depends on the service I order - FedEx 2nd Day or Overnight, USPS First-Class, etc.
I would apply the proper manual adjustment if one item incurred a freight or hazardous material surcharge. However, I follow the principle used by the IRS in their tax rules - when you come up with a method, just be consistent.
A single invoice could include precious metals by the ounce and semi-precious gems by weight, clarity and count. So, appropriating shipping expense by each item’s cost is a reasonable compromise in my situation.
The workaround I used is to add one more cost to inventory with the value zero and set quantity to -1 .
Eg:
Inventory(Bag) $100 per unit, Quantity:2
Shipping(In) $8 per unit, Quantity:1
Shipping(In) $0 per unit, Quantity: -1
Hence, nett is Quantity: 2 at total of $108 for that inventory(Bag)
Try using quantity minus 1 (-1) to offset any item for now.
