How To Account For Packaging When Book Keeping
For an entrepreneur like yourself, juggling and developing new skills may be the reason you decided to go into business in the first place. Then again, maybe you consider dryer aspects like accounting or keeping inventory a necessary evil on the road to success.
Regardless of your attitude toward book keeping, at some point you’ll have a few questions that need help answering. For instance, how should packaging be accounted for when bookkeeping? Is packaging part of Cost of Goods Sold (COGS), or do you chalk it up as a marketing expense? Quite often the answer depends on how the packaging is used in your business. However, we’ve established a few guidelines that will point you in the right direction.
When To Include Packaging In COGS
Perhaps you’ve recently purchased a series of antique china vases. To make these containers really get noticed on display you’ve adorned them with bow ribbons. In fact, the presentation generates so much interest for the vases that you include the bow with each purchase. In this instance, you would include the bow as a cost of goods sold.
Here’s another example involving florists. When designing a beautiful floral display, ribbons, cello and enclosure cards are an inseparable part of the total creation. Again, these items would be tallied in COGS.
In general, any packaging that is included as part of the final product will be counted toward COGS.
When To Count Packaging As A Marketing Expense
There are exceptions to including packaging as part of COGS. Lets take the previous florist example, this savvy business owner decides to include their logo on the stationary cards, and have the company name printed on the ribbons used to hold the bouquet together. In this case, these items would be counted as a marketing expense.
In general, any branded items such as gift boxes, paper bags or even printed ribbons should included as a marketing expense.
Photo credit Jekert Gwapo
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what about re-packaging costs? What if a customer buys something from me that they have to re-sell, but we packaged it wrong for them. Now they are repackaging it and sending it to their customer and we pay them back. Does that go to COGS or ReWork costs?