6 Best Accounting Practices for CPG Accounting

Any issues can be resolved with others throughout the organization, and cleanup can happen over time. These are simple steps and can be started with little effort, and the results can be dramatic even in a short time. This includes the cost of the materials used to produce the product, as well as any direct labor or overhead costs. In addition, CPG companies must account for any indirect costs, such as packaging and shipping, that are included in the cost of goods sold. Inventory reserves are used to account for potential losses on inventory and are recorded as a contra asset account on the balance sheet.

How To Get Bookkeeping Off Your Plate

These can include goods such as food, beverages, clothes, makeup, toilet paper, and other household products. Using this approach, COGS includes product costs and the variable costs incurred for fulfillment and operations. Specifically, the COA lists account numbers and account descriptions grouped by account types. A typical COA starts with balance sheet accounts (YTD assets and liabilities) and lists cpg accounting revenue and expense account numbers. Debt financing allows businesses to maintain full ownership while providing predictable repayment terms, tax advantages, and improved creditworthiness, making it a strategic choice for growth.

Understanding Landed Costs for CPG and DTC Companies

• This reserve is an estimate and should be recorded based on historical trends, industry trends, or other substantiated data.
• However, it’s more than just crunching numbers – it also requires an eye toward understanding consumer behavior and market trends so that companies can make informed decisions when it comes to their product lines.
• Unlike traditional general bookkeepers, Accountfully has in-depth industry experience and can therefore act as a strategic partner.
• To properly account for returns, a business needs to maintain accurate records of all returns, including the reason for the return, the date, and the value of the returned product.
• This activity can be extremely time-consuming and may include filtering hundreds of line items to extract meaningful financial intelligence for sales and finance teams.
• A cash receipts and disbursements forecast is a simple way to review what is coming in and going out of the bank, as well as preparing a short-term forecast of the expected activity.
• Learn how accurate AP forecasting and budgeting can improve cash flow management, optimize spending, and strengthen vendor relationships with our strategic guide.

Our services can steer your ship into the complex sea of costs and take you to the growth land. And it’s not just about loans or investments; you have to keep financial records accurate for tax purposes. If you are struggling with product costs, there’s an interesting guide on HubSpot. CPG, aka Consumer Packaged Goods, includes products consumers use daily, such as food products, clothing, beauty items, and so on. The sector is one of the largest in North America and contributes to Bookkeeping for Chiropractors $2 trillion in the US alone.

Establish a routine reconciliation process

To tackle this problem, you need good accounting software or a professional service. We have a detailed guide on the 5 best accounting software for cleaning businesses. Don’t get scared by the word “cleaning,” as the software is useful for any business. Financial reporting is necessary for any business, especially when the business has taken a loan or sought investment.

Track the trade spend like a hawk

• Debt financing allows businesses to maintain full ownership while providing predictable repayment terms, tax advantages, and improved creditworthiness, making it a strategic choice for growth.
• As you now know, the accounting considerations for CPG companies require careful management.
• As people understand the activity better – what is in and what is out and how it is calculated – it can lead to great insight particularly in an inflationary environment with constant change.
• Certain processes, such as shipping, returns, and accounts receivables, must be completed before revenue can be calculated.
• When a buy one, get one free coupon is redeemed as part of a sales transaction, revenue is recognized for the price of one product and cost of goods sold is recognized for the cost of both products.

From FDA labeling requirements for ingredient disclosures and health claims to food safety regulations like the Food Safety Modernization Act, CPG businesses face strict compliance rules. Even California’s Proposition 65, which mandates warning labels for products containing certain chemicals, can catch brands off guard, leading to costly fines if not properly handled. Let’s say you own a craft beer brand facing fluctuating demand during seasonal events. For forecasting, I’d use my database to help you align production schedules with expected demand, reducing waste and optimizing inventory so you don’t end up with surplus stock or stockouts during peak periods. The right deduction management strategies are essential for making sound financial decisions.

How can you help us streamline our financial operations?

• Inaccurate COGS can lead to mispriced products, shrinking margins, and poor financial visibility, which makes it difficult to identify where profits are lost or how to adjust pricing to maintain profitability.
• Their team of 15+ CFOs brings a minimum of 15 years of finance experience before joining AVL, ensuring a wealth of financial knowledge.
• If you want to scale your business, you have financial data, and you can decide accordingly.
• Keep reading to learn how to unlock the full potential of your CPG brand with these accounting best practices.
• As consumer packaged goods (CPG) brands grow and increase trade spend across channels (with more complex deductions management processes), managing accrual accounting can become quite confusing.

Unlike brick-and-mortar stores with a single physical location, eCommerce brands can have a virtual presence in multiple states, each with its own sales tax laws, rates, and exemptions. It’s even worse on normal balance marketplaces, where many states have enacted marketplace facilitator laws. Without clear insight into incoming and outgoing cash flow, it’s easy to lose track of your finances. That can lead to bills and overhead piling up before you realize there isn’t enough cash readily available to pay them (known as a liquidity squeeze). By taking these steps, you’ll gain better clarity into your finances for proper record-keeping and make informed decisions based on accurate data.