Liability account for inventories sold but pending delivery [closed]

Question

Forgive me if this is a stupidly basic question. I'm not a trained accountant, just a software developer. So the question is -

Is there a standard (or de facto standard) way for recording pending delivery of sold inventories?

There is this problem with the software that my company's using.

As an example, say Product A got sold and invoiced at Sep 30th, but the delivery of product only happened on next month of Oct 2nd. In the software, this is causing the Cost of Goods Sold expense to be recorded at a different accounting period of October, while the revenue is already recorded in September. (We're using perpetual inventory)

My company wants to keep revenue and COGS expense in the same period. And I assumed the way to go would be to have some kind of a liability account, say 'Deliverable Inventories' or something.

So that when invoicing happens, this account would be credited and COGS debited, immediately recording the expense at the time of invoice. When the actual delivery happens, the deliverable account will be debited and inventory account credited. Any difference in inventory valuation between invoice time and delivery time will also be additionally debited to COGS or some other expense account.

Changing this in the software we use might be a bit of pain. So I wanna make sure I'm getting things right first. Is it okay to do it the way I described? Thanks in advance!

Answer 1

Disclaimer: I am not a professional accountant. I am a software developer who has worked on accounting software.

The solution companies I've worked for in the past has always been to basically just not worry about delays in shipping or delivery from an accounting point of view. At the time the sale is made we credit sales (add to income), credit inventory (subtract from asset), debit cash or accounts receivable (add to asset), and debit cost of goods sold (add to expense). If the product sits in the warehouse for a few days or weeks before it's shipped, that's just not reflected in the accounting system.

If there is some reason why it is of value to track that, I would say yes, create a liability account for "goods sold but not yet shipped". Then instead of crediting inventory when you sell the item, credit unshipped (add to liability). When you finally ship it, debit unshipped (subtract from liability) and credit inventory (subtract from asset).

There may be additional debits and credits for things like shipping costs, taxes, etc, but that should be essentially the same with or without this "unshipped" account.