Woodworking Business COGS
I was top of the class in accounting back in high school, but that was 35 years ago. I'm starting a woodworking business now and after many hours of book reading and Internet searching, I think I have my bookkeeping setup pretty much figured out, except for questions related to COGS.
My business will be woodworking, specializing in manufacturing custom orders. I was having trouble remembering how to deal with the inventory/COGS side of bookkeeping, but here is what I have figured out. Someone please let me know if I have it correct.
I buy wood, paint, nails, etc, anything directly used for production of goods, and that would go in "Raw Materials (#1200)" in Current Assets. I buy saw blades, paint brushes, anything used for production that has a short life, and they go in "Disposable Tools (#1250)" in Current Assets. Once a month, I figure out the actual value of what is left in my "Raw Materials" and "Disposable Tools" inventory and make a couple entries to transfer the differences to my COGS accounts. Credit the "Raw Materials" and "Disposable Tools" accounts to bring them to the correct balances and debit the "COGS Raw Materials (#5000)" and "COGS Disposable Tools (#5050)" accounts to match.
Is that the correct way to deal with that?
And, what about the value of the raw materials? Do I keep a special purpose ledger with probably 1000's of
accounts to keep track of how many feet of 1x4 select pine, 1x4 common pine, 1x4 white maple, 1x8 white maple, 1" dowel, etc, and how many square feet of 1/2" G1S fir plywood, etc, or do I group them together, like pine, maple, dowels, plywood, etc? Is it my choice how detailed I want to break it all down? For pricing, I'd almost have to keep every different size separate, since 1x8 pine isn't exactly double the cost per foot of 1x4 pine, and select pine is double the cost of common pine.
Do I keep a separate account for every type and size of material I use?
I hope I don't spend more time bookkeeping than woodworking. Thanks for any help.
The best place to look for articles on inventory is The Sleeter Group --- IMHO.
Check out this article and hopefully it will give you a few options on how to proceed ...
Most of their solutions discuss QuickBooks or QB add ons - but it still gives you a starting point. Good luck and wishing your lots of success in your business endeavor.
Another option is to perhaps check out Esther Friedberg Karp of EFK CompuBooks Inc.. She is out of Ontario. I tried to find a website but she doesn't appear to have one ... which is weird in this day and age. She does have a Linked-In page though.