Monday, January 25, 2016

Using Inventory Lab to Track Multiple Purchase Prices

An important feature of accounting software is the ability to track your inventory expenses over time, even when you paid different prices for that inventory.

I don't talk about accounting principle often since I am not an accountant and I don't know too many accounting principles.  If I get something wrong, someone yell at me in the comments.  I give you permission this time ;)

Hopefully if we do accounting posts in small enough chunks, maybe we can learn some of the principles together over time.

There are two ways to handle this situation in your books. One is called First In, First Out (FIFO) and the other is called Last In, First Out (LIFO).

I know this because of Wikipedia

FIFO means that cost of goods sold (COGS) are based on the date that you acquired the item.  For example, Let's say I bought one iPad at $400 in June 2015 and one in July 2015 at $500 and I sell one iPad for $550 in 2015 and the second iPad in 2016 for $550.

In 2015, you will have a profit of $150 and in 2016 you will have a profit of $50.  Since you bought the one for $400 first, the first one that's sold is associated with the $400 of COGS, not $500.

This is all assuming accrual accounting (I think)

LIFO means the opposite, COGS are based on the last item bought.  In the same scenario, you will have a profit of $50 in 2015 and $150 in 2016.

The most important feature of any recognized accounting methodology is consistency.  You can't use FIFO in 2015 and and LIFO in 2016.  That would just be incorrect.

Inventory Lab

I use Inventory Lab for my accounting.  Inventory Lab uses FIFO accounting.  How do you keep track of different COGS for the same item?  First of all, you should always enter the price, the date bought and store bought from when you are listing.  It makes everything seamless as Inventory Lab will calculate it all for you.

What if you didn't do that or you are just starting with Inventory Lab?

Inventory allows you to "split" SKUs into different prices.

First click on Inventory and then FBA.  Get to the item you want to enter multiple purchase price.

Click on the SKU

You can then click on "split"

From there you can enter individual quantities with their associated COGS.

This is what it will look like when you have already entered multiple purchase prices:

I hope this was useful and I hope my accounting was correct.