Hey Ken! How are you?

Here's my understanding:
First, I'd have to say that it's their decision. That said, I BELIEVE that the proper accounting thing to do is to allocate any expense associated with the creation of inventory to that inventory - so yes, if freight and other expenses help in creating product, they can be considered product costs.

HOWEVER (and this is a big however), product costs do not necessarily equate to COGS (cost of goods sold). In fact, I pulled out my b-school accounting book (which, since my primary system is an accounting system, I keep very handy), which says:

"....product costs are initially assigned to inventory; they are reclassifed as expenses when the products are sold and the revenues they create are recognized...." (Shillinglaw and McGahran, 1993)

So it sounds to me like if you make that change, you also need to make a corresponding change to the sales system, to reallocate those costs as expenses once a sale is made.

Finally, my policy on this stuff is to always check with a CPA first. I personally consult with my accountant on some of these issues.

I'm purposely wishy-washy, because I don't know for sure, but that is my best guess.

Perhaps someone with more definitive knowledge will also respond.

Good luck,

David

>Hi All,
>
>Since I jumped in on an earlier thread with the attitude of "what can be so hard about an accounting module?" it is time to eat a little crow and ask an accounting question. < g >
>
>We have a client that wants our Purchase Order form to accumulate and allocate freight and other aquisition related expenses to the cost of materials in inventory. Is that proper? So far we have maintained that those are overhead expenses and although you may want to consider them when setting sales prices, they should not be rolled into the cost of goods sold.
>
>Any thoughts?
>
>Thanks,
>
>Ken