While going though the cost of goods sold, in the Description colomn I can see several times the name of an item and the sentence " Quantity on hand for this item is zero. Value on hand automatically transferred to expenses."
What does this mean?
This is Manager way to keep your inventory sane. If item quantity is zero, value of items on hand must be therefore also zero. However it’s possible to make quantity zero while value make non-zero amount (e.g. journal entry). When Manager detects that, it will simply move the value into costs of goods sold.
So first, is your quantity on hand really zero? If that’s correct, why was there (dollar) value put on your inventory item if there are none in inventory?
I am not sure I understand this…
In the list of Cost of Goods Sold if I look, for example, at the most recent items sold, they were indeed 0 on Dec. 20th when we sold the last units, but then we got an invoice related to the transport cost of those items on Dec. 28th and we added therefore the prorated cost of transport for those items in the transport Purchase Invoice, but of course in this Purchase Invoice the quantities of each item was 0 in order for Manager not to add extra quantities to our stock but just record the cost of transport for each item.
Maybe I have to move the date of this Purchase Invoice to a date before Dec- 20th?
Then Manager did the right thing. You’ve incurred delayed cost for items which have been already sold so Manager has moved the cost into expenses rather than retaining it as an asset.
Also, do not change the date of purchase invoice. Record transactions in Manager as they happen and let Manager make sense out of it. If Manager gets it wrong, it is a bug which needs to be fixed but in this case Manager did the right thing.
OK. The issue is that we also have to relate to the reglations of the country in which we operate, and I am not sure whether local authorities here would agree to us using part of what should be Cost of Goods sold as an expense instead. Even though, if I understand it correctly, being a sold out item… it does not really make any difference in terms of overall costs for the year profit and loss, but it is just a matter of where the cost is imputed. Correct?
If Manager moves these costs to Expenses, in which category do they go? And why does the value of those items appear anyway in the Cost of Goods sold?
There is no country in the world which would force you to capitalize the cost of inventory which you don’t have. It doesn’t matter if inventory was sold, stolen, destroyed, expired. Whatever it is, the value of it goes to expenses.
As for whether to use cost of goods sold account or something else should not matter to tax authority since expense is generally tax-deductible either way. But in this case, it is cost of goods sold. I mean what it is then? You sold some goods so all direct expenses accrued to sell goods (e.g. transport) is “cost of goods sold”.
When I refer to expenses I mean cost of goods sold because cost of goods sold is subset of expenses.
OK I think I understand your point. It basically makes no difference in terms of costs/expenses and therefore tax computation I was afraid that the cost that is “moved to expenses” would not be included in the Cost of Goods Sold and would appear somewhere else in another subcategory of costs, but that doesn’t seem to be the case.
Sorry @lubos I can also see in the same list of the Cost of Goods Sold that some items sold have a cost equal to 0. How is that possible? I am very sure that all our stock does have some costs liked to each item/unit.
Sometime you might sell items before you purchase them. So on the day you sell them, cost of goods sold is zero. Could this be the case?
Yes it could. But where or when is the cost of those goods? Is it computed anywhere else?