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Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Chapter 12
Chapter 13
Chapter 14
Chapter 15
Chapter 16
Chapter 17
Chapter 18
Chapter 19
Chapter 20
Chapter 21
Chapter 22
Chapter 23
Chapter 24
Chapter 25
Chapter 26
Chapter 27
Chapter 28
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Chapter 28

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The minimal system

If only a few items of materials or piece parts are required, a very simple system can be used.  One or two transient accounts are needed, which can be expense accounts. The piece parts are removed from inventory by using Activities|Inventory|Adjust Qty/Value on Hand.  The Adjustment Account will be the temporary expense account.  Note the decrease in the account balance due to this.  Add the item for the finished product, crediting the same account, and with the total value of parts used.  The account balance will be back where it was.

To show the entire COGS of the product, labor must be included.  An amount can be estimated. For better visibility, a general journal entry might be made, moving the labor value to another transient expense account.  (Debit the temporary expense account, and credit payroll expense.)  Then make another inventory adjustment, choosing Value Adjustment.   Increase the value of the product by the cost of the labor.

If your operation is small enough for this to work, it is much less complicated than the system described next.

 

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Last modified: May 21, 2004