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Inventory Revenue

The co-packer who makes our trail-mixes has had issues sourcing organic banana so we have decided to sell them some from our supply. How do we account for this? I don’t know if we would show the amounts as revenue as this will dilute our gross margin. What would the treatment be if we sold them the product at our cost? If we made a small margin on it?

Answers

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Arms length transaction and since it is NOT your usual transaction (business model), it can/should be other income (if any).

Larry Brown
Title: CFO
Company: Canvas Systems
(CFO, Canvas Systems ) |

If you are buying the trail mix from your supplier and and then re-selling, then it seems you are advancing them inventory which will come back to you. If that is the case, then it appears to me you would record the sale/transfer of your bananas to the co-packer at cost (as the earnings process is not complete) since it would be just a transfer of inventory from you to them. Then when you buy it back, your trail mix inventory would be recorded correctly (at cost assuming not higher than market) and it would be properly recorded as cost of sales when you sell the trail mix to your customer.

Anonymous
(Accounting Manager) |

Larry: Actually that's how I have been accounting currently in our book. But what if we would like to sell bananas to a little higher cost than what we bought for. We buy from our supplier at $ 2.85/lb and would like to sale it to our co-packer for let's say $3/lb. Should we account it as revenue or other income as Emerson mentioned above? If we can make a margin then why not accounted as revenue?

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