Cost Accounting
Cost accounting is the practice of documenting, analyzing, and categorizing the costs of producing a good or delivering a service. Cost accounting requires consideration of both fixed and variable costs, as well as direct and indirect costs.
Business owners, management, board members, and investors use the data derived from cost accounting to run the daily operations of their business and plan for the future. With properly managed books, these decision makers can determine product profitability and accurately predict future cash flows. Cost accounting is also required for financials to be GAAP compliant.
Most importantly, if the cost accounting is done in the recurring financials and in compliance with GAAP inventory accounting, IRC 471-11 allows for more costs to be allocated into inventory, which means lower taxable income for your company, after those products are sold.
With cost accounting, you can use rational allocation methods to attribute certain parts of an overall monthly expense into inventory, and eventually into COGS. Remember, all COGS costs start in inventory until the product is sold and is integral to keeping your Cannabis company in compliance with GAAP as well as the best practice for maximizing your tax deductions.
