Accounting for inventory in subsequent periods
ronyambu
Member Posts: 1
In the article, "Simple Inventory entry & tracking in Wave" byKatie Silkinathe suggestion is to create two accounts 'Inventory' in assets and COGs in expenses.
Dr. Inventory
Cr, COGS
When recognising inventory
Dr. COGS
CR. Inventory
After every sale.
I found this solution to be perfect in the first year of operations.
The problem I have is when populating an income statement in subsequent year. The income statement by design will not carry forward the balances in the COGs expense account but inventory will carry the balance.
Now say, you make a sale and follow the advise given, you would.
Dr. CoGs
CR. Inventory
with the cost of the products sold.
If you populate income statement with custom dates for the second year only, the income statement will be missleading.
How so? Remember the CoGs account did not carry prior year numbers.
Without the opening inventory balance and the closing inventory balance in the income statement, the true cost of goods sold will not be shown. These can be input separately in excel to show a 'true' income statement.
I am wondering if there is a workaround that I may have missed. Thanks in advance for the help.
Comments
Hi Ronyambu,
Great question! It's not that you've missed anything, rather a little clarity around how Wave handles year end might be helpful. The Profit and Loss Report pulls information from your Income and Expense accounts (CoGS), which are temporary accounts that measure incoming and outgoing funds over time. Wondering what happens to the balance in your income and expense accounts at the end of the cycle? Wave ends your accounting period by moving the funds to retained earnings accounts.
Please follow up if you'd like to share any other thoughts with the community, or if you have additional questions.