COGS - Negative?!

[mllefrench]

Hello,

So I'm having a hard time with this whole form. I owned a Sewn Products Manufacturing Company for about a year.
Our Beginning of the Year Inventory (supplies and equipment used to create the clothing and the fabric itself) was: $5,332.70,
Purchases: 5862.35,
Labor 1660.00,
Other Costs (Overhead + Shipping): $1603.38,
Totals out to $14,458.05.
Our End of the Year Inventory was only $1474.31, the rest of the fabric and equipment, thus giving us a -12,983.74 figure.

Most of the inventory (raw goods) at the end of the year had been turned into samples, some of which we sold, but the rest of them cannot be sold. They're either the wrong size, dyeing issues, fit, etc. So, they're worthless. Is there something I'm missing? Thank you in advance for any input.

[tallen]

Change the order -- subtract your year-end inventory from your total (rather than the other way around) and you'll have a COGS of +12,983.74

[vangogh]

Something doesn't seem right in the way things were added, though I may be misinterpreting things. Wouldn't the labor and other costs be subtracted instead of added? Is still wouldn't balance, but it would closer. Some of the difference is the lost material. I'm guessing you sold some clothing too, which would help account for more of the difference.

What form are you trying to fill out?

[jamesray50]

Hello,

So I'm having a hard time with this whole form. I owned a Sewn Products Manufacturing Company for about a year.
Our Beginning of the Year Inventory (supplies and equipment used to create the clothing and the fabric itself) was: $5,332.70,

Purchases: 5862.35,
Labor 1660.00,
Other Costs (Overhead + Shipping): $1603.38,
Totals out to $14,458.05.
Our End of the Year Inventory was only $1474.31, the rest of the fabric and equipment, thus giving us a -12,983.74 figure.

Most of the inventory (raw goods) at the end of the year had been turned into samples, some of which we sold, but the rest of them cannot be sold. They're either the wrong size, dyeing issues, fit, etc. So, they're worthless. Is there something I'm missing? Thank you in advance for any input.

Why did you include equipment in your inventory? Equipment is a Fixed Asset.

Beginning Inventory $5332.70
Add - Purchases 5862.30 General Ledger entries Debit Inventory - Credit Cash
Subtract - Sales ? General Ledger entries Debit Cash - Credit Inventory
Debit COGS - Credit Income
Total Inventory before any year end adjustment

Journal entry after inventory count Debit Inventory (to increase value)
Credit COGS

or Credit Inventory (to decrease value)
Debit COGS

Notes: COGS is Cost of Goods Sold - This means you only use expenses that are directly related to the sale. Only labor used in the production of the item, overhead is not a COGS, shipping is.

Samples and unsellable items are not COSG, you didn't sell them so there is no cost associated with them - they are expenses - Debit expense and Credit Inventory.

Hope this helps, if not please ask more questions.

[Evan]

Unless you're selling the product, equipment isn't "inventory". It'd be depreciated somewhere else (generally).

Samples, while their cost should be subtracted out of "purchases", often aren't and reported separately. Therefore, they often end up in COGS. Keep in mind samples are reported at COST when you give them away.