Hi All,
I would just like to express an opinion on "landed Cost".
According to most accounting standards, incoming Inventory should be valued at "landed cost"
itemized landed cost is the correct way to handle inventory from the “GAAP” perspective. Additionally, IRS Publication 538 states that "For merchandise purchased during the year, cost means the invoice price minus appropriate discounts plus transportation or other charges incurred in acquiring the goods. It can also include other costs that have to be capitalized under the uniform capitalization rules of section 263A of the Internal Revenue Code.""Landed Cost" is the legally correct way to account for inventory and is also the best method for management purposes.
many commercial software packages now include some way to handle this issue.for frontaccounting, when entering a supplier / service provider invoice, or making a payment by direct journal entry It should be possible to apportion it on a line by line basis between an expense account (for non "landed costs" invoice Items and a "cost of goods sold" Suspense account until the goods arrive.
On receipt of the goods received note, the balance of that suspense account is allocated according to the preferred method (weight, volume, quantity etc.) to each line of goods on the GRN.
Dimensions would also be a good way to keep track of all items related to a particular order for audit purposes.
Finally!
As the guy who started the thread, there are a lot of apples being mixed with the oranges in this thread.
Landed cost is somehow getting mixed with Inventory Valuation. There are basically 3 methods of inventory valuation, First In - First Out (FIFO), Last In - First Out (LIFO) and Replacement Cost. As mentioned above, these are recognized by the IRS, and you can only change from on to another once every, I think, 5 or 7 years, in order to stop people from gaming the system during times of steep price changes.
Landed cost is well stated above, although some do allocate shipping based on weight, rather than a flat percentage across the invoice. memory chips have hardly any weight, but high value. But their actual percentage of a load of electronics could be 50%, while their weight is 2%.
Landed cost requires keeping a PO open until all related costs are received. As stated above, unless special costs such as VAT, GST, etc. in some countries must be broken out, everything goes to COGS or Inventory Value, including inbound shipping that many incorrectly call an expense.
Earlier versions of Peachtree and the more expensive Sage and other accounting packages allow posting the inventory, so the goods show in stock, but not FINALIZING the PO until all related costs are shown. For my UK operation it can be several weeks before getting an invoice from DHL for VAT and their processing fees. I'm sure others have a similar experience.
The point I'm trying to make here is simply related to Landed Cost.
How you decide to bring that into your Inventory Valuation, as far as average cost, FIFO, LIFO, etc. is an entirely different subject. My personal choice has always been Replacement Cost, but this can show a higher bottom line at year end.
Ideally, the accounting should use an Average Cost for COGS, considering the entire history of costs for that item, but show the FIFO, LIFO, RC value in Assets. They truly are two different fruits.