Production orders best understanding

1

I would like to know exactly how this Production Order is working

For example. I have a farm where im producing Tomatoes Peppers and others products.

My questions are:

  1. Should I enter this products as Inventory Items?
  2. How to records the raw materials cost in order to have the production cost?
  3. Should salaries and wages of farm workers be entered in the cost structure
  4. The raw materials should be also entered as Inventory items?
  5. Once this Production order is finished how is it going in the system as finish product? in terms of KG or in terms of Pcs
2

Production orders are for converting raw materials/parts into finished goods - e.g. ingredients used in making packaged food, or components used to manufacture machinery. You wouldn’t use production orders for cropping as your production inputs - labour, fertilizer, fuels etc. can’t be converted into finished goods as your finished goods are coming from seeds.

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3

@lamarane, I don’t think you should consider your product to be inventory because it is perishable. Inventory involves goods held for production or sale. I don’t imagine you holding your products. You can either sell them quickly or you can’t. Depending on the scale of your operation, you might or might not need sales invoices. You could easily fall into an abyss of spending all your time accounting and have no time for farming.

If you are a small grower and sell at a local market to cash customers, use the Receive Money feature in a bank account to deposit the day’s sales income. Allocate the transaction to an income account like Cash sales. You could further divide your income types by product if you want. Use either Spend Money or–if you are buying on credit–purchase invoices to record your expenses. Allocate those transactions to something like Farming supplies.

On the other hand, if you are a large-scale commercial grower of products that can be stored long-term, such as apples, then you might want to track your product via inventory. Advice from an accountant with agricultural experience would be helpful.

Questions about whether raw materials should be held as inventory are best answered by the accountant, too. If they are purchased and used quickly, that wouldn’t make much sense. But if you buy large quantities and use over long time periods, it might.

The guiding philosophy should be to adopt the simplest accounting approach that gives you the information you need to run your operation intelligently, know your financial position and performance, and satisfy legal and tax reporting requirements. Personally, I doubt that would include inventory tracking or production orders. It might well not include either sales or purchase invoices. Begin by designing an intelligent chart of accounts.

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