Monthly Inventory/Cost of Goods (COG) Adjustments Procedure HUDSON, Ohio – A new monthly reconciliation process in Visual Books ensures job shops and manufacturers alike, of proper alignment of costs-of-goods to sales, to correctly represent true monthly profitability. The resulting tighter integration between Visual Books and Visual EstiTrack from Henning Industrial Software adds a valuable feature not often present in shop management systems. “To accurately reflect Income Statement profit and loss,” company president Rich Henning explains, “it is important to make appropriate monthly adjustments that move expenses between the Income & Balance statements. The goal is to have the expenses related to cost of goods occur during the same fiscal period as the sales of the goods sold. To achieve this companies must absorb direct labor, burden and other direct job related costs off the income statement into work in process (WIP) on the balance sheet. And then move expenses off the balance sheet’s WIP and or finished goods inventory accounts back to the income statement’s cost of goods sold expense accounts when the products are sold.” The new, Monthly Inventory/Cost of Goods (COG) Adjustment Procedure presents a formal method for setting up absorption accounts for labor, burden, and direct buys. In this way expenses initially reflected on the income statement such as shop payroll can be offset (reduced) and moved to the balance sheet’s work in process account based on job activity occurring during the month. Jobs being closed out to finished goods require a simple journal entry to move value out of WIP and into the finished goods inventory account. This transaction simply moves costs from one balance sheet asset account to another. Alternatively, when the goods are sold directly from WIP, then a journal entry is made to move it from WIP back to cost of goods. Many accountants manually calculate and enter these monthly adjustment entries, having no automated process available to them. Visual EstiTrack’s Inventory Reconciliation Screen provides an easy means to calculate and post the necessary monthly adjustments directly to Visual Books via the general journal. Each number presented on the worksheet is substantiated through detailed reports available by double-clicking on the number being reviewed. Once the user reviews and validates the numbers they can make the appropriate general ledger entries through a click of a button. “Monthly, our clients typically <expense out> onto the income statement their payroll for direct labor, plus any kind of overhead expenses, which might include both office salaried employees as well as rent, and so on. Based on job activity preformed during that month, those expenses must be removed from the income statement and into work in process. Closed jobs are no longer WIP, and must move either to finished goods (manufacturer) or cost of goods (job shop). These are the entries mentioned earlier that often are made in Accounting, using spreadsheets, to manage the flow of cost to finished goods and back to the income statement. Many job shop owners are unaware of the Absorption concept. Henning learned through his client base that “They continually wonder why one month looks highly profitable, and another isn’t. Without Absorption, they have shown all expenses on the income statement without any offsetting sales, which went into WIP. “Then, in other, slow sales months, expenses already were expensed. It looks like a really profitable month. In reality alignment of the cost of goods with sales will give a truer, more balanced profit representation.” Henning Industrial Software develops, markets, and supports practical, affordable, and user-friendly shop management software solutions for industrial applications. The company’s Visual EstiTrack™ shop management software is complemented by the Visual Books™ integrated accounting system. Located in Hudson, Ohio, Henning was founded in 1990. For information: Henning Industrial Software, 581 Boston Mills Road Suite 300, Hudson, Ohio 44236; Telephone: (330) 650-4212; FAX: (330) 528-0397; Web: www.henningsoftware.com. For copy: (IBM) http://www.great-pr.com/downloads/his075r.rtf Canadian Representative: VBS Systems, 509 Jarvis St., London, Ontario, N6K1X3; Phone: (519) 471-9669; Fax: (519) 471-0471; Email: jmclean@execulink.com |
HENNING SOFTWARE INC • 102 FIRST STREET. SUITE 211 • HUDSON, OHIO 44236-1112 |