My old system expensed raw materials through AP. How does DBA handle it?
Many small businesses expense materials as they are purchased and labor when payroll is run while the associated income is not recognized until a later period when finished products are actually shipped. This can result in wide fluctuations in reported profitability and also requires posting to “Inventory Change” account at the end of the year to correct for expenses already taken associated with inventory still in-house. DBA uses the more accurate method of accrual asset based inventory whereby materials purchased are assets (raw material) which are issued to Work Orders along with Labor (still increasing asset value in WIP) and ultimately posted to Finished production (asset account). At the time of invoicing, the GL Posting to COGS expense occurs at the same time as the reduction in the inventory asset value and the recognition of the income. Therefore there is no longer a need for Material Expense associated with purchases. IN-N-A will provide management with the cost incurred for
