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Old 01-11-2018, 08:44 AM
westone westone is offline
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Income from sale of scrap

Hi,
A home improvement business accumulated a large pile of scrap aluminum over the course of several years. The scrap was sold recently. Suggestions on how to classify the income from the sale?

Since it accumulated over multiple years, entering against COGS would create an inaccurate picture of materials cost for the current year, right?

Thanks for any suggestions.
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  #2  
Old 01-11-2018, 09:03 AM
BooksInVA BooksInVA is offline
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Our accountant said stuff like that is 'Other Income' so we have an other income account specifically for things such as selling scrap metal, refunds from vendors, and other little things that come up from time to time that aren't part of our usual income.
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Old 01-11-2018, 09:08 AM
westone westone is offline
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Thanks BooksInVA, I did exactly as you suggest and created an Other Income account for the occasional sale of scrap materials.

Have a good day!
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Old 01-11-2018, 11:53 AM
Froid Froid is offline
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Unsure what dollar amount becomes significant for your business, but you may still want to consider posting as a credit to a COGS account. Afterall, you incur scrap expenses (damage, waste, trimmings, obsolescence, etc.) there, so it seems only proper to recoup costs. When I worked in aerospace, we would hit the recycler a couple times each year to get roughly 10% of the overall cost back on metals, usually to the tune of $20k annually.
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Old 01-11-2018, 02:34 PM
Lorin Browning Lorin Browning is offline
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Since this scrap was accumulated "over the course of several years", it would be an accounting impropriety to "recover" all those costs during the current accounting cycle. That's one of the functions of the Other Income (as opposed to the Current Income) section of the Income Statement Chart of Accounts. BooksinVA's advice was on-point but that may not be appropriate advice for one with a company that "hit[s] the recycler a couple times a year".

Posting the entire amount as a reduction in expense to the current year cost of goods sold could distort the financials for current year. If the amount is material, starting to do so now could be regarded as a change of accounting methods and require IRS approval. That may not be appropriate advices for one with a company that is that "hit[s] the recycler a couple times a year".


If one were excessively anal or if one were being paid by the hour to do unnecessary grunt work, one could spend time re-doing past-year financials and the tax returns that are still open for amending to allocate the proper amounts recovered to what you take to be the appropriate accounting and tax periods. I would strongly urge checking with the tax preparer and the auditors to see what their fees would be for redoing their reports for all those years.
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Last edited by Lorin Browning; 01-11-2018 at 03:56 PM.
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  #6  
Old 01-11-2018, 04:53 PM
Froid Froid is offline
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Geez...relax

Try not to be so inflexible, Lorin the PhD. Not sure why you routinely contest my posts, but you come across as resentful for my participation. Just offering up another perspective. Sorry for invading your little world here.

My "advice" did use wording like 'may want to consider' and I gave a nod to materiality. With that in mind, if the scrap sales came to $200 for a $1M business, it really doesn't matter where one wishes to post a refund. It's far from an accounting impropriety - probably even if it came to $2,000. You make it sound like IRS agents will rain down on the business or something.

Anybody spending any time in manufacturing knows that refunds/scrap sales/discounts/etc impact costing over the course of time. Moreover, government contracting may indeed require out-of-period items that affect costing.
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