I have a new client who sometimes gives away his inventory items as promotional items. I just wanted to make sure that this is being handled correctly - they have been taking the cost of the item from his cost of goods sold account and moving it to the promo expense account. Should I use the price he paid for the item originally or the price he could have potentially sold it for? If it is the price he purchased it for, this should not affect GST at all, correct?
Other items to consider that affects inventory are Promotional items do affect inventory. These transactions should be recorded when they occur so that your year-end inventory counts are not out.
If you are using QuickBooks, use Sales Receipts to enter the transactions. Setting the sales price to $0 removes the items from inventory without creating sales revenue. You will use an item pre-coded to promotions, or advertising and promotions. This ensures your sales tax is handled correctly.
The sales receipt also provides an accounting for who received the items and why. I would suggest that a recipient sign the sales receipt to acknowledge receipt of goods.
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