True COGS = COGS + PPV Account ?
JimmyDarkMoon
different then the receiver cost on the receipt of inventory, so any
variances go to the PPV account, then to get the true cost of
inventory sold do you need to sum up the COGS plus PPV account ?
Leslie Vail
the difference was deemed immaterial to inventory and therefore expensed as a
PPV. If the PPV seems too high, it's time to adjust the revalue tolerences.
Leslie
JimmyDarkMoon
> Yes, even though the inventory related to the cost variance may not be sold -
> the difference was deemed immaterial to inventory and therefore expensed as a
> PPV. If the PPV seems too high, it's time to adjust the revalue tolerences.
But how do you know what part of the total PPV was sold? And is this
a manual calculation? In other words, let me elaborate. Say I
purchase 1000 items at $1.00 each listed on the PO and received at
$1.00. Then invoice arrives and the cost per item is $1.10. I do
NOT have revalue inventory checked so $100 goes to PPV. Now, I sell
500 of the items. Do I have to manually figure out that $50 should be
added to the COGS before running any financial reports? And if this
is manual, how to determine the amounts? Is there a procedure to do
this?
Frank Hamelly, MCP-GP, MCT, MVP
It is common practice in some companies to just take the full amount
of the PPV to the P&L in the period it is posted, irrespective of
whether the items were sold in that period or not. Other firms take
PPV to the balance sheet and then try to manually recognize the PPV in
the period the items are sold. There is no mechanism in GP to
automatically calculate and post the PPV in the period items are sold.
As you will learn as your career progresses, in the real world,
accounting is not the exact science that it is in academia. Tradeoffs
have to be made between 'exact' and 'good-enough' when workload
exceeds the time to get the work done.
Hope this helps,
Frank Hamelly
MCP-GP, MCT, MVP
East Coast Dynamics
www.eastcoast-dynamics.com
blog: www.gp2themax.blogspot.com
Frank Hamelly, MCP-GP, MCT, MVP
There is no mechanism in GP to determine how much PPV should be
allotted per period based on items sold. Some companies take the
entire PPV to the P&L in the period the PPV is posted. Other
companies put PPV on the balance sheet and attempt to manually
allocate the PPV in the period the items it relates to are sold.
As your career progresses, you'll find that accounting is not an exact
science. The desire for 'exact' is compromised by workload exceeding
time available and 'good-enough' becomes good enough :)
Frank Hamelly, MCP-GP, MCT, MVP
contradict anything in my first response by what I said in my second -
LOL.
JimmyDarkMoon
>It is common practice in some companies to just take the full amount
>of the PPV to the P&L in the period it is posted, irrespective of
>whether the items were sold in that period or not.
Thanks Frank. How is the PPV account listed on financials? That is,
is it a separate listing or is it just added to COGS? I would think
most would want to see the actual amount listed right? So if it's
high you know somethings up with your vendors. Are they constantly
over charging you? or is your purchasing dept. not getting the
current cost? If the PPV account is rolled into COGS you'll never
know this correct?
Frank Hamelly, MCP-GP, MCT, MVP
for financial reporting. It allows you to drill into the components
of any line item on a P&L or balance sheet.
Generally financial statements are analyzed by accounting staff prior
to presentation to management so any anomolies in the results can be
highlighted. C-level executives do not like to see too many lines of
detail on a financial report.
Richard Whaley -- MVP 2006-2008
P&L account. Like Frank, I believe it to be a P&L account and back him up
when he said that accounting is NOT exact in many cases (depreciation, PPV,
et cetera)
To discuss your question of BS vs PL placement...
The first month that a firm is in existance, certainly much of the inventory
purchased will be retained in inventory (BS) and thus most of the PPV will be
BS charges. However, as time goes by, current sales will consume a
percentage of current purchases, a percent of recent purchases, a percent of
past purchases, and a percent of even older inventory, all of which had some
PPV component. On the average, this month's PPV taken to COGS is roughly
equilivant to the total PPV that should be taken as long as inventory levels
are staying relatively stable. However, not taking all of PPV to COGS would
require a PPV Reserve account, something no CPA seems willing to add to the
COA. As a result, like Frank said, all firms take PPV to COGS. Some every
month and some at the end of the year.
--
Richard L. Whaley
Author / Consultant / MVP 2006-2008
Documentation for Software Users
Get our Free Tips and Tricks Newsletter and check out our books at
http://www.AccoladePublications.com
JimmyDarkMoon
>On the average, this month's PPV taken to COGS is roughly
>equilivant to the total PPV that should be taken as long
>as inventory levels are staying relatively stable.
Richard, so basically you're saying just take the current monthly PPV
amount to COGS and everything should average out in the long run as
long as inventory levels stay stable? And the only way to roll it
into COGS is via FRx reporting correct? And there is a way to pull the
monthly PPV amount?
Richard Whaley -- MVP 2006-2008
can, for each fiscal period, let FRx show it combined and at the end of the
year, before closing, actually reclass the amounts. However, if you have PPV
as a balance sheet account,....well the accountants/auditors may not like
this.
--
Richard L. Whaley
Author / Consultant / MVP 2006-2008
Documentation for Software Users
Get our Free Tips and Tricks Newsletter and check out our books at
http://www.AccoladePublications.com
JimmyDarkMoon
> Most people reclass the balance in PPV to COGS through a journal entry. You
> can, for each fiscal period, let FRx show it combined and at the end of the
> year, before closing, actually reclass the amounts. However, if you have PPV
> as a balance sheet account,....well the accountants/auditors may not like this.
I think I should change my topic of this thread because the "true"
COGS should include not only the PPV account but also the Discounts
Taken account right? Since if you take a discount you pay less for
your goods, hence less per item which means your COGS per item will be
lower.
Mariano Gomez
spend their entire careers as accountants and CPAs and are always fairful of
cost accounting, because it's not an easy matter to grasp or apply in real
life. Hence the trade offs.
If you really want to get that deep into COGS, then you have to figure in
returns and allowances along with purchasing discounts as part of your
Purchasing line. You will also have to factor in the freight paid to get
merchandise from your supplier to your warehouse. There may be other cost
components factored into a purchased product, for example, packaging,
presentation, etc.
Best regards,
--
MG.-
Mariano Gomez, MIS, MCP, PMP
Maximum Global Business, LLC
http://www.maximumglobalbusiness.com
The Dynamics GP Blogster at http://dynamicsgpblogster.blogspot.com
Richard Whaley -- MVP 2006-2008
of sales reps salaries, commissions, advertising, discounts, et cetera all
figure into selling expenses.
If you over simplify, you get nothing but revenue, expenses, assets,
liabilities, capital, (5 accounts) but then you could not tell where the
money is going to or comming from.
--
Richard L. Whaley
Author / Consultant / MVP 2006-2008
Documentation for Software Users
Get our Free Tips and Tricks Newsletter and check out our books at
http://www.AccoladePublications.com
Mariano Gomez
"materially favorable or unfavorable". For something to be factored into COGS
auditors need to determine whether it was materially favorable or unfavorable
to the cost of the product before you can even decide to report it on your
financials. I have seen many companies performing adjustments to COGS because
of this very same issue.
Best regards,
--
MG.-
Mariano Gomez, MIS, MCP, PMP
Maximum Global Business, LLC
http://www.maximumglobalbusiness.com
The Dynamics GP Blogster at http://dynamicsgpblogster.blogspot.com
JimmyDarkMoon
>If you really want to get that deep into COGS...
Yes I know this can get deep but as Frank mentioned above there is
"good enough" and if you just use the PPV account and the Discounts
Taken account you can probably get "good enough" without getting into
the real nitty-gritty. Besides the amounts have to be "material" and
some of those costs may be "immaterial", i.e. just not worth the
bother. :)