QuickBooks Asia

Why the COGS pick up the foreign currency value instead of the home currency value

Why the Cost of Goods Sold account shows the foreign currency value instead of the home currency value?

 

Scenario:

Home currency was in Singapore Dollar.

01 Dec 2010, invoiced your customer for item A at S$1,000.00. 

05 Dec 2010, received Bill from your supplier for item A at US$550.00

The exchange rate for the month was at S$1.40 : US$1.00 and Item A was a new item in your inventory list.

 

After the above transactions were recorded into QuickBooks, you discovered that the Cost of Goods Sold in Profit and Loss report for Item A was recorded as 550.00 instead of showing 770.00, which was the correct value in Singapore dollar; it shows the US dollar value. 

What causes this problem?

When user recorded the invoice for Item A at S$1,000.00, it causes the quantity on hand for Item A to fall into negative (that is -1). Since it is a new item, there is no prior cost, when user recorded the Bill on 5 Dec; QuickBooks did an auto-correction in Cost of Goods Sold.

This seems to be a bug, by right, when Bill was entered, the auto-correction feature should pick up 770.00 (amount in Singapore dollar) but it pick up the US dollar value (550.00).

To correct this issue, user can consider changing the date of the bill to be before the invoice date (consider adding the original date in the memo of the bill). This will increase the stock on hand for Item A to 1 and update the average cost to 770.00. So, when invoice is done after the bill, the cost of goods sold will pick up the average cost correctly at 770.00.

The proper way of doing this is to record the invoice after the bill. You should not issue invoice when there is no stock. If you need to issue Proforma invoice, consider using Sales Order in QuickBooks instead of using Invoice feature.

 

How can QuickBooks helps in managing my goods in both Bonded Warehouse and my own warehouse?

Bonded Warehouse – From Wikipedia http://en.wikipedia.org/wiki/Bonded_warehouse ... All goods deposited in a warehouse, without payment of duty on the first importation, upon being entered for home consumption, are chargeable with existing duties on like goods under any customs acts in force at the time of passing such entry …

A client of mine requires using QuickBooks for their Wine Business. In Wine business, they will import Wines and store it in a Bonded Warehouse, as and when they needed the wine, they will transfer out from the Bonded Warehouse to their own warehouse and thereafter selling off to their customer.

So, how can QuickBooks helps my client in his Wine trading business?

Example:

Wine name: Wine A, 75ml with 12.5% of alcohol

Raw cost: $20.00

Duty: $6.35

Selling price: $40.00

Base on the above example, how to enter it in QuickBooks?

When Bill received from supplier, the bill consists of only the raw cost of the wine (i.e. $20.00). Goods will be store in the Bonded Warehouse, thus, duty at this stage was not paid.

The double entry for this transaction will be:

    Debit Bonded Warehouse (Other Current Assets type of account): $20.00

Credit Accounts Payable account: $20.00

From the Balance Sheet, you will be able to see the inventory value of $20.00 for inventory at the Bonded Warehouse.

Next, you should create an Inventory Assembly item to combine the raw cost of the item with the duty. I will prefer adding the duty as an Other Charge Item and link it to the COGS account (Cost of Goods Sold account).I will create a new Inventory Asset account such as ‘Inventory Assets – Own Warehouse’, then, link the Assembly’s inventory asset account to this newly created Inventory Asset account. 

When you require drawing out the stock from the Bonded Warehouse, you should do a Build Assemblies to reduce the stock in the Bonded Warehouse and increase the stock in your own Warehouse.

The double entry for the Build Assemblies will be:

    Debit Own Warehouse (Other Current Asset type of account): 26.35

Credit Bonded Warehouse (Other Current Asset type of account): 20.00

Credit Duty (COGS): $6.35

When the Duty paid to the Custom, the double entry will be:

    Debit Duty account (COGS): $6.35

Credit Bank: $6.35

You can record the payment of the Duty via a Write Cheque function in QuickBooks.

The Duty (Cost of Goods Sold account) was zero off; this was because the cost of the duty had transferred into the cost of the item during Build Assemblies process; and was added to the Inventory Assets account (that is, Inventory Asset – Own Warehouse account).

When you create an invoice to your customer (For the Assembly item), the double entry of the invoice will be:

    Debit Accounts Receivable: $40.00

Credit Sales account $40.00

    Debit Cost of goods sold account $26.35

Credit Own Warehouse account (Other Current Assets account) $26.35

In this stage, the Cost of Goods Sold will increase by $26.35 and Inventory Asset – Own Warehouse account will reduced by $26.35.

Usually, the Bonded Warehouse operator will assign a Lot number for your storage, to capture the Lot number you may consider to enter the Lot number in the description field on both the Invoice and Bill recorded. This is to help in searching or matching of Lot number at the later stage.

In some cases, you may consider to incorporate the Lot number together with the item code. However, if this were to be the case, you have to consider the maximum number of stock item (that is, maximum 14,500 items for QuickBooks Premier and below) in the item list. 

The above is a solution for small trader that requires managing the goods in both the Bonded Warehouse and their own warehouse. You may contact our sales, if you like to engage us as a QuickBooks consultant for your business.