Hi I'm trying to do some basic financial forecasting for a business that has inventory. We occur the cost of materials in one month. Should i record that into the cogs in one month or have it related to sales and spread out with the rest of the cogs?
IANAA, but would suggest this depends on the purpose of the Financial Forecasting.<p>If you're trying to run a cashflow projection, you probably need to record cogs in the month the cost is incurred.<p>If you're trying to determine margins, it may be better to records cogs when they're actually sold - just be sure to factor in any loan costs that may be associated (and ignore 'opportunity costs' from purchasing early, because you may as well pull figures out of thin air).<p>If the forecasting impacts on Tax, then that probably throws another spanner into the works, which I can't really help with.<p>Edit - you may also want to post the question over at Chuwe.com - hits their audience nicely.
Anything Financial can benefit from Pacioli's treatise (<a href="http://en.wikipedia.org/wiki/Luca_Pacioli" rel="nofollow">http://en.wikipedia.org/wiki/Luca_Pacioli</a>) :)!<p>If you modeling using a spreadsheet or by pulling records off a database or an old and ancient ledger the method is the same:<p>- When you Purchase<p><pre><code> debit stock, credit Creditor
</code></pre>
- When you Pay<p><pre><code> debit Creditor, credit Bank
</code></pre>
- When you Sell<p><pre><code> credit stock, debit customer +
debit profit (difference between sales price
and purchase price)
</code></pre>
- When you receive the money (if you selling on credit)<p><pre><code> credit debtor, debit bank
</code></pre>
When I started in coding normal accounting methods seemed long and convoluted! However, as the years went by I discovered that this is the easier way to visualize the flow of financial transcactions and it automatically caters for time.<p>We should call any db based on this as a Pacioli's Datastructure:)<p>As a bonus, the method includes a test. The sum of all the above transcactions === 0;