cd18524
Member
In a system like penventory how do you put a dollar figure on wood blanks? I pay different prices depending on vendor, figure, need, etc. Just curious what others do.
Chris
Chris
Accounting question
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cd18524
Member
Maybe I did not ask this right????
What I am trying to figure out is how do you keep records of how much money in inventory you have. If I pay $5.00 for Amboyna burl from one source and then happen to get some on ebay for $2.00 how do you track that? I don't want to record each piece of wood I buy. Penventory allows you to put a dollar amount in your inventory for each specific wood source and then it makes its calculations based on that amount. So do you put $5.00 in and regardless of what you pay for it say it is $5.00?
Chris
What I am trying to figure out is how do you keep records of how much money in inventory you have. If I pay $5.00 for Amboyna burl from one source and then happen to get some on ebay for $2.00 how do you track that? I don't want to record each piece of wood I buy. Penventory allows you to put a dollar amount in your inventory for each specific wood source and then it makes its calculations based on that amount. So do you put $5.00 in and regardless of what you pay for it say it is $5.00?
Chris
Pipes
Member
I don't keep those kina records we record what is spent and what comes in for the tax man and thats it !! I get so much more for a pen the cost of a blank it really don't matter much !These computer programs and book keeping and keeping track a what blanks I have and what kits HURTS my head ! Can't make saw dust with a headache [
]
pipes
]pipes
Ron in Drums PA
Member
Depends on how much you fear the tax man. He wants to see exactly how much you spent regardless of what you think it's worth.
If it's for your personal use, any number will do.
GaryMGg
Member
I think I understand the question and I think it's part of what's wrong with some of the programs out there.
When you make a purchase, you should be able to record how many of what you bought
at what price. The software ought to be capable of calculating results you want to see-- be it your current average cost, high cost, replacement cost, whatever.
Currently, I'm tracking this stuff in spreadsheets because it's a new thing for me and I had no idea I'd enjoy it so much and dive in so quickly. I'm going to put it into a database. The question remains which one.
webmonk
Member
In my experience, recording different costs for "different" items (different only in cost because of sales, etc.) isn't the problem. It's what you do with it from that point on, especially when it comes to generating specific reports. If we just average the numbers out, that's not so bad, but if you need to know the actual cost of individual bits of inventory it gets hairy. The main problem being that you'd need to be extremely meticulous when marking off used inventory or your amounts will be off more to the point where you might as well just be averaging them. It gets even scarier if you want to know how much your inventory was worth at this time last year (or any historical view).
What I do personally is average my costs and not worry about the pennies. So, if I buy 5 palm blanks for $1 each and then later 5 more palm blanks for $2 each, my inventory is worth $15. When I use one, I don't try to remember which one was a $2 blank, I just consider them all now worth $1.50. Let's say I use 5 of them, so now I'm left with 5 blanks with an averaged value of $7.50. I go to the store and they're having a sale so I buy 5 more for $0.50 each. I just throw those into the mix I currently have, so $7.50 + $2.50 / 10 = $1.00 each so my total inventory is now worth $10. (If you do that scenario and pretend you never used the expensive blanks you'll see that your actual inventory value is way off from the averaged value.)
That probably just confused the issue more than it helped...
However, if you figure out how you'd like it to work let me know and I'll see what we can do about making Penventory work that way!
What I do personally is average my costs and not worry about the pennies. So, if I buy 5 palm blanks for $1 each and then later 5 more palm blanks for $2 each, my inventory is worth $15. When I use one, I don't try to remember which one was a $2 blank, I just consider them all now worth $1.50. Let's say I use 5 of them, so now I'm left with 5 blanks with an averaged value of $7.50. I go to the store and they're having a sale so I buy 5 more for $0.50 each. I just throw those into the mix I currently have, so $7.50 + $2.50 / 10 = $1.00 each so my total inventory is now worth $10. (If you do that scenario and pretend you never used the expensive blanks you'll see that your actual inventory value is way off from the averaged value.)
That probably just confused the issue more than it helped...
However, if you figure out how you'd like it to work let me know and I'll see what we can do about making Penventory work that way!
GaryMGg
Member
Jon,
I agree with the idea of averaging the inventory. I just think that the current application doesn't provide that capability -- did I miss it?
Maybe it's overkill for pen blanks, but for inventory that turns over several times a year, replacement cost is, imho, the important factor -- for instance, when a production input that cost 10.00 each jumps to 15.00 each, one has to have a change in retail price.
With pens, a change in some specific wood blank price would have to be pretty dramatic to seriously affect the pen price, but kits vary more dramatically because of things like group buys, single kit infill orders, and so forth. Plus, if one does a fair amount of trading and doesn't include shipping costs, their numbers could be off by a good amount.
I agree with the idea of averaging the inventory. I just think that the current application doesn't provide that capability -- did I miss it?
Maybe it's overkill for pen blanks, but for inventory that turns over several times a year, replacement cost is, imho, the important factor -- for instance, when a production input that cost 10.00 each jumps to 15.00 each, one has to have a change in retail price.
With pens, a change in some specific wood blank price would have to be pretty dramatic to seriously affect the pen price, but kits vary more dramatically because of things like group buys, single kit infill orders, and so forth. Plus, if one does a fair amount of trading and doesn't include shipping costs, their numbers could be off by a good amount.
webmonk
Member
Heya Gary,
When I originally wrote the system I was going for the most flexible way of doing things as possible. In the case of kits/blanks the cost area can be edited as needed, so when I get a new shipment in I just edit that field to be the updated average. That also leaves the option for other to use a fixed cost for their material. If the user wants to get even trickier, they could have multiple entries for blanks with different costs (akin to the detail method) but then they would have the burden of remembering to which batch the specific blank/kit they used came from.
I guess the answer to the general question of "Which method of accounting does Penventory use?" is that it doesn't use any. It is set up to allow you to enter your inventory in multiple ways that effectively mimic many different styles of accounting.
For fun, here's one way to tackle the specific case in Penventory of your kit jumping from $10 to $15 if we didn't want to use the averaging method. Fisrt, I assume we already have the original entry for our PKs (that's what we'll call our made up kit) when we first bought them for $10. So the price of platinum spikes and now they cost us $15. So the next time we get a shipment instead of adding them to the original record, we just created a new record with everything the same except for the cost. So now what we see when we look at our inventory report are two entries for PKs at two different prices. Later, you get an amazing deal on a Group Buy. If it's not going to work out to be the same as one of the two records you have for the PKs, you could make yet a 3rd entry with yet another cost. Now you've got 3 entries and 3 different costs. The reports still balance and everything (I can think of) still works correctly in the system. The only thing you need to do to keep things accurate is to make sure that when you use up your inventory you use them from the correct record. But even that might not be a big deal since we assumed the kits are identical in every way except the amount you paid.
Ya know... Pipes is right. My head hurts now.
When I originally wrote the system I was going for the most flexible way of doing things as possible. In the case of kits/blanks the cost area can be edited as needed, so when I get a new shipment in I just edit that field to be the updated average. That also leaves the option for other to use a fixed cost for their material. If the user wants to get even trickier, they could have multiple entries for blanks with different costs (akin to the detail method) but then they would have the burden of remembering to which batch the specific blank/kit they used came from.
I guess the answer to the general question of "Which method of accounting does Penventory use?" is that it doesn't use any. It is set up to allow you to enter your inventory in multiple ways that effectively mimic many different styles of accounting.
For fun, here's one way to tackle the specific case in Penventory of your kit jumping from $10 to $15 if we didn't want to use the averaging method. Fisrt, I assume we already have the original entry for our PKs (that's what we'll call our made up kit) when we first bought them for $10. So the price of platinum spikes and now they cost us $15. So the next time we get a shipment instead of adding them to the original record, we just created a new record with everything the same except for the cost. So now what we see when we look at our inventory report are two entries for PKs at two different prices. Later, you get an amazing deal on a Group Buy. If it's not going to work out to be the same as one of the two records you have for the PKs, you could make yet a 3rd entry with yet another cost. Now you've got 3 entries and 3 different costs. The reports still balance and everything (I can think of) still works correctly in the system. The only thing you need to do to keep things accurate is to make sure that when you use up your inventory you use them from the correct record. But even that might not be a big deal since we assumed the kits are identical in every way except the amount you paid.
Ya know... Pipes is right. My head hurts now.
TBone
Member
This will get you inaccurate numbers because you are only using part of your inventory to average. If you include all of the blanks for averaging in the above example it would be $17.50 for 15 blanks = $1.17 Granted that's not much in this example, but the more often you buy at different prices and the more blanks you use it will vary by a much greater amount. IMHO (which along with $1.50 will get you a soft drink at the corner store [8D]), the are only accurate ways to do it is to
1. Average all of your blanks (of each type) purchased during the year.
2. Record each purchase seperately and mark them off as used. You don't need to mark each blank with a price but track the number used to match the number purchased at that price.
As A CPA, I can tell you that resolution regarding the proper method of valuing your inventory is not likely to be found in a discussion thread like this. Inventory valuation is complex with literally hundreds of tax cases and rulings weighing in to support or attack both generally accepted accounting principles and IRS regulations. If your business files its own tax return or if you are a Schedule C (Form 1040) user, it is wise to consult an accountant to select and implement an appropriate system. Even then, the IRS has recently been disallowing certain formerly approved valuation methods. As your business grows, I can't stress enough that you need professional advice. And no, I don't do that any more, so I'm not touting myself. If you are interested in an excellent, but somewhat dated article on inventory valuation, check out http://www.googobits.com/articles/2400-how-to-account-for-inventory-for-income-tax-purposes.html . As far as I know, all of the information provided is still accurate.
webmonk
Member
Yup, that's where the historical problem comes in. The averaging method I described is an "accurate" view of current inventory, but as you point out, does not take into account what you had in the past. I guess I "solve" that problem for me because since pens have a cost (derived from the kits, blanks, etc) the history of my inventory is essentially stored in the Pen records.
I'm just a hobbiest with turning so I don't have the experience to know what kind of figures and reports someone would want (and need) to see. In fact, just as I'm writing this I see a post just came in from someone very knowledgabe in this field and I was about to say something along those very lines. If you're looking for *real* accounting, there's no way a project like mine can keep up to date with all the accounting rules changes. What I can do, and would rather focus on, is generate downloadable inventory reports that directly import into whatever your official accounting system happens to be. To me, that's the best of both worlds - custom inventory tracking software specific to our hobby that meshes with real world, accepted accounting practices.
I'm just a hobbiest with turning so I don't have the experience to know what kind of figures and reports someone would want (and need) to see. In fact, just as I'm writing this I see a post just came in from someone very knowledgabe in this field and I was about to say something along those very lines. If you're looking for *real* accounting, there's no way a project like mine can keep up to date with all the accounting rules changes. What I can do, and would rather focus on, is generate downloadable inventory reports that directly import into whatever your official accounting system happens to be. To me, that's the best of both worlds - custom inventory tracking software specific to our hobby that meshes with real world, accepted accounting practices.
TBone
Member
Very good advice given by Lou above. Information provided above is for the hobbyist. Tracking each purchase and it's use will always be allowed by the IRS because it's actually what happened. The key is keeping records that allow you to prove this. I can tell you from experience, it's what you can prove that counts. However, the more you sell, the harder this becomes. If you are doing this full time or even heavy part time, I urge you to follow Lou's advice and have someone knowledgeable to set up a system for you and follow it.
cd18524
Member
Thanks for the replies so far. Lots of interesting thought. As far as my accounting goes I do what Pipes does. What is spent is recorded and what is sold is recorded. I was just trying to keep things a little more accurate. I thought if I could get it all in the computer it would be easier to keep track of.
webmonk - sent you a pm.
Chris
webmonk - sent you a pm.
Chris
bob393
Member
Originally posted by Pipes
<br />I don't keep those kina records we record what is spent and what comes in for the tax man and thats it !! I get so much more for a pen the cost of a blank it really don't matter much !These computer programs and book keeping and keeping track a what blanks I have and what kits HURTS my head ! Can't make saw dust with a headache [
What he said!
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