This is what is meant by the FISH method of accounting. To add insult to injury, if the item is still in the store at inventory time, you get to pay taxes on merchandise that shouldn’t have been bought in the first place and should have been either stock balanced with the vendor or marked down. The lifeblood of any retail establishment is cash flow and COGS does not take that into account. The result Ñ COGS-excellent! COGP-horrible! The style doesn’t sell as it should and for reasons unknown to all does not get returned or marked down. Has this ever happened to you? A style or styles gets purchased, generally with no regard to the merchandise plan, gets put on the wall amidst the rest of the assortment and ends up getting lost. I see this all too often, especially in the footwear business.
Though clearly not recognized by generally accepted accounting practices, this is where the FISH accounting method comes in to play Ñ first in, still here. Whichever method you use, know that there will be a difference in profits and therefore income taxes. LIFO Ð last in, first out Ð on the other hand, would recognize that items purchased last would be the sold first. Simply stated FIFO Ð or first in, first out Ð assumes that items purchased first, were also the items sold first. FIFO and LIFO are the most widely accepted accounting methods and FIFO is the most trusted and easiest to use. Not to complicate issues, but it needs to be stated that varying accounting methods will have a bearing on COGS. The cost of goods purchased would paint a much different picture and it wouldn’t be pretty. Herein lies the problem Ñ you still have 45 pairs that you have already paid for remaining in unsold inventory.
Your cost of goods sold would be excellent since the cost of selling the widgets did not require any discounting to generate the sales.
COGS FINANCE FULL
After four months you were only able to sell five pairs of the shoes, but they all sold at full price. Let’s assume that you bought a new style of 50 pairs of running shoes for the current season. The following example illustrates the difference between the two. Using COGP, on the other hand, relates purchases directly back to cash flow. Paul’s claim is that using COGS can provide a retailer with a somewhat unhealthy financial perspective since selling very little at full price can result in a very good COGS. COGP is determined by simply subtracting purchases from sales for the same period. Paul Erickson, a colleague of mine at Management One, describes COGS as “the most misleading metric in retail.” He prefers to use Cost of Goods Purchased (COGP) as it more directly relates to cash flow and thus the financial health of the business. What exactly is COGS anyway? Also referred to as Cost of Sales, cost of goods sold is just what it says it is Ñ the cost of all of the inventory sold during a given period. When reviewing a profit and loss statement, one of the traditional benchmarking metrics is Cost of Goods Sold (COGS).
0 kommentar(er)
