![]() Your accountant can help you decide which method is best, based on factors that include the size of your company, the types of inventory you carry, supply chain dependencies and, not incidentally, the economic conditions of the day. Because these costs are not static (in most cases they’re rising) inventory valuation methods (also called cost flow assumptions) were standardized to make inventory valuation easier and more consistent year over year. For eCommerce businesses that manufacture their own goods, inventory costs include the cost of raw materials used, direct labor, packaging, and indirect costs such as overhead and administration. Once you make a decision, you have to stick with it for the sake of consistency (and because the IRS says so).įor most eCommerce businesses, inventory costs include the purchase price, freight, labor to get it on the shelves, and storage. Because this decision affects profitability as well as taxable income, you should understand the pros and cons of each method. These costs go into calculating the cost of goods sold, as well as the value of your ending inventory (the merchandise inventory you have left at the end of the year).Īs an eCommerce business owner, If you have an accountant, one of the first decisions they’ll ask is which inventory cost flow method you want to use. ![]() The four inventory valuation methods used in accounting are:Įach method is a different way of assigning costs to each physical unit of merchandise that flows through your business each year. What You Need to Know about Inventory Accounting Methods Stick with us and you’ll find out what WAC is, what other options you have, and which one is right for your business. So how do you calculate inventory costs? There are several methods, and Weighted Average Cost is one of those methods. Oh and, btw, it’s also a number you need to know at tax time, because it goes into calculating your net income and, ultimately, your taxable income. ![]() Most importantly, it goes into the formula to calculate the cost of goods sold (COGS) which determines whether or not your business is making a profit. Knowing how to calculate the value of your merchandise inventory is a big deal for lots of reasons. ![]()
0 Comments
Leave a Reply. |