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Cost of Goods Sold Cost of Goods Sold Inventory •Items purchased for the purpose of being sold to customers. The cost of the items purchased but not yet sold is reported in the resale inventory account or central storeroom inventory account. Inventory is reported as a current asset on the balance sheet. Inventory is a significant asset that needs to be monitored closely. Too much inventory can result in cash flow problems, additional expenses and losses if the items become obsolete. Too little inventory can result in lost sales and lost customers. Inventory is reported on the balance sheet at the amount paid to obtain (purchase) the items, not at its selling price. Cost of Goods Sold • Inventory management Involves regulation of the size of the investment in goods on hand, the types of goods carried in stock, and turnover rates. The investment in inventory should be kept at a minimum consistent with maintenance of adequate stocks of proper quality to meet sales demand. Increases or decreases in the inventory investment must be tested against the effect on profits and working capital. Standard levels of inventory should be established as adequate for a given volume of business, and stock control procedures applied so as to limit purchase as required. Such controls should not preclude volume purchase of nonperishable items when price advantages may be obtained under unusual circumstances. The rate of inventory turnover is a valuable test of merchandising efficiency and should be computed monthly Cost of Goods Sold • Inventory management All inventories are valued at cost which is defined as invoice price plus freight charges less discounts. Inventory items received at no cost are recorded as a debit to the inventory account and a credit to Bonus Merchandise. End-of period physical inventories are valued at or priced on the first-in first-out (FIFO) basis. In FIFO, requisitions are priced at the earliest invoice cost at which the items were placed in stock. Quantities on hand at the inventory date are considered to be those items most recently purchased. When possible, individuals familiar with departmental stock will be assigned to taking inventory. Counter will be indoctrinated thoroughly not only in the method of counting but also in the system of recording the count, for example, the count proceeds from left to right, top to bottom, in book-reading fashion. Cost of Goods Sold •Inventory management Completed by a team of two people. One will call and inspect the inventory while the other enters (in ink) the quantities on the sheets. Each department will be inventoried separately. (example: Food, Bar) During the course of the inventory, independent test checks will be conducted to insure the maximum of accuracy. Items found to be on hand, which were omitted from the inventory sheet, will be recorded by the inventory team, provided such items can be positively identified as activity owned property. Unit prices for retail department merchandise will be taken from current vendor invoice at the time of count. Cost of Goods Sold •Inventory management All merchandise will be listed and counted in the same unit category as priced for sale Only the unit cost price will be shown for service department items. This will be taken from the vendor invoice. The same person inserting the unit price amount also records the unit "type" such as dz., ea. gr. •Inventory Count All counts, identification, and pricing of inventories are to be adequately rechecked by a disinterested party* other than the one who recorded the original data. All inventory counts are to be verified and audited by the accounting staff. *Disinterested party is defined as anyone who does not work or manage the facility i.e., Bowling Center personnel would be a disinterested person for the golf course etc. Cost of Goods Sold Extension of Inventory Sheets All inventory count sheets will be extended and totaled by personnel in the accounting office. Departmental Inventory Worksheets After the inventory work sheets have been extended and totaled, inventory sheets will be summarized in value by department. •These values will then be compared against the book inventory. • Retail variances will be converted to cost by multiplying retail variances by departmental cost ratios. Note: Variances in inventory have a major impact on cost of goods; therefore, all discrepancies must be investigated to determine the validity of the disparity. During the “soft close” of SAP, review your COGS, you have ample time to correct inventories prior to the final close out of SAP It is also imperative that costs of goods are reviewed on a monthly basis. This will provide the manager with a working document with which to assess the business as well as detect possible theft within his/her facility..
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