Why, you may ask? Because much of what is sold in a bridal store is Special Ordered and the merchandise is yet to be received, and not included in inventory totals. Yet, when an item is sold the Cost of Sales is being increased and inventory decreased the net effect of which is an understating in the ledger.
A simple illustration is a store with no inventory (GL Inventory account = 0) that sales a special order item with a retail price of $200 and a cost of $100. A typical posting would look like this (which our system provides):
Cash 200
Revenue 200
-----
Cost of Sales (COS) 100
Inventory 100
So here the inventory total will be -100 which is inaccurate since the least it should be is $0
The solution is to create two GL accounts, example - 1) Accounts Payable- Special Orders & 2) Cost of Sales Special Orders. Then manually perform an easy monthly journal entry from data obtainable via ProfitSystem’s standard reports to determine the debit/credits to those two accounts.
These Special Order Accounts would maintain the balance of Special Orders Paid in Full not received and cost of sales for special orders which as you will see below avoids understating inventory while allowing for accurate profit calculation. As Special Ordered items are received their cost are moved to COS & Inventory on a monthly basis. Suggested approach ( amounts are for illustration only):
Cash 200
Revenue 200 ----
Cost of Sales 0
Inventory 0
Cost of Sales Special Orders 100
AP Special Order 100
=====================
How to maintain the Cost of Sales Special Orders & AP Pending Special Order accounts
Posting calculation is for a simulated March.
> March PO costing reports should be run promptly at end of month since numbers change daily
> Utilize the PO Costing Report, option # 4. See screen shots
Calculation (All Reports are revenue realized basis)
1. Cost of Sales (all sales) of current month 10,000 (ProfitSystem [PS] Cost of sales report)
2. Less: Merchandise paid in full, not received for the month 3,000 (PS Paid in full not received for the month
3. Net amount 7,000 (1-2)
4. Total A/P PIF Not Received Special 15,000 (#7 line from prior Feb. Report)
Prior mth
5. Paid in full for Current month . 3,000 (PS Paid in full current month report
6. 18,000 (4+5)
7. Tot. A/P PIF Special Order Not Recd 17,000 (PO Paid in Full from beginning of
time through current month Jan 1
1900 to Mar 31 20xx)
8. Change in Special Order AP-current mth 1,000 (6-7)
========================================= March
Journal Entries debit credit
Cost of Sales 7,000 (#3)
*Cost of Sales - Special Orders 3,000 (#2)
Inventory 7,000 (#3)
*A/P Special Orders 3,000 (#2)
*A/P Special Orders 1,000 (#8)
Inventory 1,000 (#8)
