Karin,
I am a studio (not storefront) jeweler. I use Quicken Home &
Business to manage my books, along with some “homegrown” excel and db
applications.
With regard to inventory, I was told by my accountant to handle it
as follows, which is what I’ve done.
-
Take inventory of all materials used in the finished products
you produce. The actual amount you paid for the materials is their
value for tax purposes (not the replacement value or the cost of the
piece that results). Yes, this is a pain, and I generally do a FULL
inventory once a year, with a spot inventory about half-way through
the year.
-
When you buy new materials, add it to the inventory list. (I
just add it directly from my invoices.)
-
Decide whether your way of “processing” inventory is going to be
LIFO (last in, first out) or FIFO (first in, first out) and stick
with that method. Basically, think of it this way. You buy 10 ft.
of silver wire at $5.00/ft on 1/12. You buy another 10 ft of silver
wire at 6.50/ft on 3/15.
You don’t want to have to keep track of which bag of wire you’ve
pulled from – it’s still exactly the same wire. From an inventory
perspective you just want to keep track that you used 3 ft. of wire.
By deciding whether you’re using LIFO or FIFO, you simply decide
which row of inventory to automatically deduct from first, on a
rolling basis of use.
- When you take inventory for your full inventory, after the first
time you do it, you’re basically looking at stuff that’s on your list
and seeing how much you have left of it. When you’ve bought new,
you’ve added it to the list, remember – so you’re more following a
checklist than counting everything and writing it down.
Do I count every little thing? NO. I figure it out roughly based
on what I know. I have a pack of jump rings and I get the weight of
one (or 10) of them, then weigh the pack to figure out about how many
there are. Wire I guesstimate based on the circumference of the coil
and how many wraps there are… or based on the weight of the coil of
wire if I tracked that when inputting the inventory (most suppliers
list the weight of what you bought).
So you have “20 ft. silver wire” on your inventory list and you
figure out that you have 17 ft left. You know you used 3 ft (your
cost of goods sold) and you’re carrying 17 ft in inventory. The
value of the 3 ft and the 17 ft will be determined by whether you used
LIFO or FIFO. With LIFO, you used $19.50 in wire and have $95.50
remaining in inventory. With FIFO, you used $15.00 in wire and have
$100. remaining in inventory. Either way, your total costs were
$115.
For Federal taxes (your state will vary), you have to declare an
opening and closing inventory each year. That inventory should be
made up of your raw materials as well as the cost of materials and
independent labor (not YOUR labor, unless you draw a salary from the
business) for any finished pieces.
The opening inventory each year must match the previous year’s
closing inventory, or you have to declare why it doesn’t.
In terms of materials you had before you started using the software,
I think the issue is more what you’ve previously declared on your tax
returns (Form C). If you’ve declared inventory, then that needs to
remain your starting inventory for the year. Otherwise, you should
simply input the inventory as your “starting point” in the software,
declaring its value as best you know and can document it.
It’s a bit of a pain to get started with, but once you’ve done it
for a bit it will be MUCH easier.
I hope this helps.
Karen Goeller
@Karen_Goeller
www.nolimitations.com