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General Accounting Discussions: Cost of goods sold for picture framing business

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    • CommentAuthordenifoster
    • CommentTimeJun 29th 2007
     
    Hi all...I have worked in the auto dealer industry for years, where all inventory is relieved when the sale is posted, so inventory (should be) accurate at all times. Now I'm trying to set up a friend's picture framing business and am confused at inventory. So I guess he would do his actual inventory once a year and estimate his Cost of Sales monthly? Is this what is called cost accounting? Do I setup purchase accounts for separate things like moulding, mats, glass, etc.? How about packing supplies, should those just be expensed? I guess mats and glass could be costed out at sale, but mouldings for frames come by the foot.....so like I said, confused! Thanks ahead of time!!! Denise
    • CommentAuthorabril
    • CommentTimeJun 30th 2007
     
    .. why do he need to estimate cost of sales monthly?

    well, yeah its "part" of cost accounting.

    for purchases account, you dont have to make a separate accounts for these materials.. all you need to do is use a subsidiary accounts for them or for every suppliers and then at the end of each fiscal period, you summarize their accounts and post it to the "controlling account" in the ledger which is actually the "purchases account".

    for packing supplies, to expense it or not will depend on your company's threshhold. but assuming the value of packing supplies is material, you shouldnt expensed it right away.. you record it as Supplies. its needed in the computation of factory overhead.
    Thankful People: denifoster
    • CommentAuthordenifoster
    • CommentTimeJul 13th 2007
     
    To estimate his cost of sales monthly, I guess I mean to say that if the purchases/inventory are in an asset account, he would need to reduce his inventory and increase his cost of sales monthly to get a more accurate gross profit, if he doesn't do it with each transaction or sale like I am used to doing. Is this thinking correct?

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