Accounting and Inventory

[kbarker]

Hi All,

  My business has grown and my accountant has asked that I start doing a full inventory. I have not come up with a plan or way of doing this and thought I would ask here. I have done inventories at other jobs in the past but my question comes with leather. Do you list it as a side? by the square foot? I realize it might be all up to me and what works best but I don't even know where to start. I use Quickbooks currently and if there is ever a time to switch its in the next couple years. Any suggestions, templates, thoughts, critiques are all welcome. Thanks so much!

 

Kellie

[RW6mm]

I was surprised that with the myriad of “Leather Inventory Items” your concern is that of “ Leather on hand”.  
My purchases are by the sq ft. usually.  Some are 20 inches by 30 inches.

NOW, you have me thinking...., humm, 

WHAT IS THE BEST METHOD to know our value of Leather On Hand??

 

[Danne]

An idea. (The accounting rules might be a little different from here in Europe)

When you buy a side you attach a little tag with Weight and price with shipping for that hide. When it's time for your inventory you can check the weight of your hides and you have an approximate value. It will also make it easier if you for example cut off the belly part. Instead of having to measure your hide to find out the size, this would be a lot quicker.

An Excel sheet would be useful here also, just check the weight of your hides and update your excel sheet.

Edited January 25, 2022 by Danne

[Stewart]

Well, I guess you would do by the type  of leather-veg.-oil-Crome lamb- than thickness  than the sq ft.

Tools -numbers and price paid

Liquids may be name and brand than price paid

hard supplies like rivets-- by pound /ounces divide by cost. 

Buckels and such each.

Where I worked thats how we did it. the rivets we used whin relined  truck shoes . counted out a pound. than weighed the barrel.

[Dwight]

Where I used to work . . .  we used a lot of tints in our paint making process . . . as long as the drum was in the warehouse . . . it was in inventory . . . once it came out of the warehouse into the factory . . . the whole thing was wrote off at one time as expended.

You could do the same thing . . . blue tag means this hide / piece / etc is still in inventory . . . once it is cut . . . gets a red tag . . . has been considered used up.  

I don't know the name of that inventory system off the top of my head . . . heard it bandied around years ago . . . don't recall.

Your accountant should know the name . . . and should be helpful to set it up that way.

May God bless,

Dwight

[chuck123wapati]

price it the same way you buy it. So the receipts match what you have in your inventory, sell it the same way. makes it much simpler when talking to an accountant. 

 

Edited January 25, 2022 by chuck123wapati

[Spyros]

I'd keep it really simple.  Write down everything that you buy on a spreadsheet (or directly in quickbooks), at the price that you paid.  

Then once a month do a quick stock count but only for expensive items, mainly leather.  Everything you find on hand stays in the books as "stock on hand", everything you had in the previous month stock count or bought in the month and can't find on your shelves any more goes down to "cost of goods sold".  By "down" I mean that your books (and any financial report) have a balance sheet that tells you what you have and what you own, and (typically underneath it) a profit and loss account that tells you how much profit you made in the month.    Stock on hand goes on the balance sheet, cost of goods sold goes in the P/L and comes out of your profit.

When you do a stock count you can break down the leather in as many detailed categories as you want by type/colour/thickness etc but it's probably more trouble than it's worth, I'd just keep a rolling balance of square feet on hand, that's it, all in one bucket.   The equation is really simple:  Leather on hand from last month's stock count PLUS purchases of leather in the month LESS stock on hand this month = Leather consumed in the month.  That's your cost of sales as far as leather goes.

For smaller value consumable items like thread and glue etc I wouldn't bother with monitoring stock levels at all.  Too much trouble for no real benefit, I'd just record their cost straight into the P/L as you buy it at the value you paid for it and it all goes into cost of sales without cycling into inventory first.  This means that for consumables other the leather you assume that whatever you buy in the month you also consume in the month.  Even if that assumption is not always true, the difference in dollars is probably too immaterial to make any difference in your financial reporting.

Machines, tools and other long life items go into the balance sheet in "fixed assets" as you buy them and stay there forever.   You just take down to the P/L a percentage of the value as depreciation periodically based on tax rules, your accountant should be able to do that for you.

Edited January 25, 2022 by Spyros

[Handstitched]

When it comes to tax time ( June 30 in Oz) , I just do an estimate of what I have . Theres no bloody way I'll be doing a stocktake every tax time.  Theres full hides, half hides, scraps, you name it. And the endless assortment of  hardware, templates, books  and God knows what else ??? Imagine counting all that??  F**k that !!! 

The only thing I count is my  H/D machine for depreciation . 

Basically, '  > this is what I've earnt, > this what I've spent ' > this is what my stock & materials are worth . 

My estimates have been quite good 

The last time someone tried to  show me how to use 'excel'  , I felt like throwing the computer  screen across the room.

HS

[chuck123wapati]

2 hours ago, Handstitched said:

When it comes to tax time ( June 30 in Oz) , I just do an estimate of what I have . Theres no bloody way I'll be doing a stocktake every tax time.  Theres full hides, half hides, scraps, you name it. And the endless assortment of  hardware, templates, books  and God knows what else ??? Imagine counting all that??  F**k that !!! 

The only thing I count is my  H/D machine for depreciation . 

Basically, '  > this is what I've earnt, > this what I've spent ' > this is what my stock & materials are worth . 

My estimates have been quite good 

The last time someone tried to  show me how to use 'excel'  , I felt like throwing the computer  screen across the room.

HS

excel is awesome once you learn how to write those formulas. Had a kid from Canada i teach me while he was incarcerated for fraud. Smart kid anyway. i created a data base for my motor pool. 67 vehicles and i could tell you exactly every penny, every mile , all service records and when the next maintenance was due. It cut down paper work for my mechanic by 75% and i could print out my budget stuff in minutes. If i were to use anything for my inventory it would be excel.

[JayEhl]

I know that many folks would rather keep things simple using paper ledgers and don't want to bother with a computer.  Heck, when I leave my IT job I keep telling myself I don't want to be around a computer, either, but know that will be difficult. 

So, if I may add to the conversation, MS Excel is now in the business of a 'subscription' model, meaning you have to lease the license on a yearly basis as part of their Microsoft Office 365 portfolio of applications... corporate greed knows no bounds, it seems 

Excel hasn't really added any "WOW" features that would be worth an annual subscription, anyway, but if you wanted to use an electronic spreadsheet while avoiding additional expenses,  you could find an older version of Excel on probably an even older computer (who doesn't have an old computer that is hardly being used anymore -- and doesn't need to touch the internet).  Another option is using the Google version called Google Sheets on the chrome browser.  It is safe and secure (as any product on the internet) and would be my goto if I ever decided to launch my business, full time and it is still free.

Just my .035 worth (inflation)

 

 

 

[chuck123wapati]

20 minutes ago, JayEhl said:

I know that many folks would rather keep things simple using paper ledgers and don't want to bother with a computer.  Heck, when I leave my IT job I keep telling myself I don't want to be around a computer, either, but know that will be difficult. 

So, if I may add to the conversation, MS Excel is now in the business of a 'subscription' model, meaning you have to lease the license on a yearly basis as part of their Microsoft Office 365 portfolio of applications... corporate greed knows no bounds, it seems 

Excel hasn't really added any "WOW" features that would be worth an annual subscription, anyway, but if you wanted to use an electronic spreadsheet while avoiding additional expenses,  you could find an older version of Excel on probably an even older computer (who doesn't have an old computer that is hardly being used anymore -- and doesn't need to touch the internet).  Another option is using the Google version called Google Sheets on the chrome browser.  It is safe and secure (as any product on the internet) and would be my goto if I ever decided to launch my business, full time and it is still free.

Just my .035 worth (inflation)

 

 

 

i didn't know that what  a shame. But like you my career with computers started with dos and ended when i retired and i plan on keeping it that way lol. I only use them now for this.

[Northmount]

Don't count up rivets, snaps, dyes, thread and stuff like that.  Put it into a column called expendables and write it off for the year it was purchased in.  On the opposite side, if you wish, charge a shop materials fee on every sale of $5, $10 or what ever.  I'm sure you are already including it in your selling price already, but it would probably make your accountant happier to see it.

For the amount that I do, which is not very much, I buy the materials personally, then for each item sold, I charge $10, $20, etc. per estimated square foot including waste.  And add $5, $10, $15 etc. for the expendables. So at tax time, it becomes a simple matter of income - expenses.  I have lots of leather, but it is all mine, and I don't have to inventory it.

For the small business running out of your home, you can also take a percentage of your utilities, taxes, insurance, mortgage interest, etc. for the percentage of space used.  Don't forget to count hallways and bathroom as part of the business space (since you have to be able to get to your work area).  Refer to your tax regulations and ask your accountant. (If you have one!  Got rid of mine years ago as he provided no benefit to me and never followed through with any suggestions to improve my corporate tax and personal income situations.  Followed his procedure, plus bought the approved software and never went back to him.  Also use the interpretations your taxation department makes available.)

Don't count software and some of your smaller computer devices as capital as they are replaced frequently.  Write them off as you buy them.  Higher priced items that you will use for a few years, depreciate them as allowed, then junk them and write off the remaining depreciated value.

[Handstitched]

17 hours ago, JayEhl said:

(who doesn't have an old computer that is hardly being used anymore -- and doesn't need to touch the internet)

Me  Don't laugh . What do you think I'm using typing this ? 

HS