Spoilage Question

[Trnr395]

I have a question regarding accounting for spoilage. With a restaurant business when the supplies become outdated and have to be thrown away should this be added up and deducted as a line item for spoilage OR is it already accounted for when I enter the ending inventory figures.

Thanks

[JohnH]

There's no separate deduction for spoilage. For tax purposes it makes no difference whether the food is served to customers or thrown away.

You have deducted the spoilage automatically via the COGS calculation. The money spent for food in the current year is in "Purchases" and the change in inventory (up or down) automatically carries it to COGS as needed.

[Trnr395]

There's no separate deduction for spoilage. For tax purposes it makes no difference whether the food is served to customers or thrown away.

You have deducted the spoilage automatically via the COGS calculation. The money spent for food in the current year is in "Purchases" and the change in inventory (up or down) automatically carries it to COGS as needed.

That is what I have always advised my clients on but one client told me the other day she was talking to another business similiar to hers and they said they keep track of everything that is spoiled and give this figure to their accountant and they use it as a deduction. I tried to explain that by doing that they are getting the deduction twice.

[RoyDaleOne]

They may or may not be getting two deductions. If the accountant handles it properly they are not.

[PapaJoe]

Handled properly, the spoilage gets deducted only once. For tax purposes it does not matter (much) whether it is accounted for separately or just adjusted through COGS. However, for accounting purposes it is desirable to separately account for spoilage so the owner or management knows how much food is being thrown away (or stolen by employees). It can make a difference in actions taken by management to control costs.

[JohnH]

Yes. it may be advisable to track spoilage for management purposes, but not for tax purposes. It might be helpful back-up in a sales tax audit if you're way off the sales tax auditor's averages o his little checklist.

Back before I swore off doing accounting work for reaturants, I'd have a couple of clients who listed "spoilage" as well. I didn't do anything with the figure, but I still took the number from them because it made them feel better. Maybe that's what this person's preparer is doing as well.

[RoyDaleOne]

Just as an added note, you can take spoilage as an expense and not part of COGS.

Just don't double up the deductions.

[Trnr395]

Yes. it may be advisable to track spoilage for management purposes, but not for tax purposes. It might be helpful back-up in a sales tax audit if you're way off the sales tax auditor's averages o his little checklist.

Back before I swore off doing accounting work for reaturants, I'd have a couple of clients who listed "spoilage" as well. I didn't do anything with the figure, but I still took the number from them because it made them feel better. Maybe that's what this person's preparer is doing as well.

I have done the same thing in the past....I will take the number but not plug it into the return.