Inventory t account cogs3/10/2024 Think of COGS as the very final entry made to finalized the reduction of inventory due to a sales. It's almost never due to decreased in cost of production or cost of sale because those deduction will be made elsewhere. When you are consolidating A and B together for Financial Reporting purpose, you must reverse out what I have written above, so you will have entries like this:Ĭonsolidated company (A+B)'s perspective:Ī credit to COGS is almost always due to some sort of reversal (i.e, sales return, elimination of interco.). The inventory was never sold to external parties, and is kept on Company B's book. Hence if A and B are related companies, A sells inventory to B, the entry would have been made like this: Oh I have to work on so many Interco-workpapers.ġ/ The goal of intercompany elimination is that you treat them as if it never happens at all - because economically it hasn't - simplifying, ofc. I am finding this difficult to understand. So is the COGS account, on which there are debit side entries only?!!! So any credit entry to the COGS account is meaningless. However, that would be ridiculous, as the summation of the COGS account would bring it to zero and thus the gross profit would be faulty. I thought, when the goods are sold, the cost of the goods sold is recovered, so it should reflect on the credit side of the COGS account. with what entry on the credit side? Or simply only all the entries on the debit side are summed up? However, does the COGS account ever get credited any time? When? Moreover, how is the summation of the T-account of the COGS made, i.e. Of course when the COGS account is debited, on the contra, the Inventory account is credited or vice versa. I found that, when the goods are sold, the debit side of the COGS account gets an entry, as the COGS account is a debit side account on the financial statement. I am just trying to understand accounting. I searched for this on the net and found no answer. We have never verified the credentials of any user. Please seek appropriate professional advice for tax-related matters. Resume Homework Offtopic Undo Filter Useful Links General InformationĪny opinions provided within this community are for informational purposes only.
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