Ambrook makes it easy for you to track items that you produce on your operation by having specific values and categories you can set up.
If you only want to use Ambrook to track the quantity of inventory on hand, you can set the price of the self-produced items to zero and also use a zero value in all quantity updates. You can skip the accounting related discussions below if that is your goal.
Unlike traditional, purchased inventory, self-produced inventory has no cost basis. For this reason, it often gets omitted from the balance sheet in other accounting software, but for production operations representing this kind of inventory is essential to calculating business equity and maximizing borrowing power.
Price & value for self produced items
When setting the price (a proxy for the cost basis) on self-product items, you can take one of two approaches:
Use the market value: This is a simple method where you recognize the value of produced inventory at the rate you could sell the goods for on the market. While easier, if you do use the market value as the “price” of your self produced inventory, this will also be the rate of the cost of goods sold later on. This limits your ability to assess gross profit on these items
Estimate the cost basis: For some operations, e.g. a livestock operation that uses the base value method, it makes sense to recognize produced inventory at an estimated cost basis. This lets you display accrual-basis gross profit at the time of sale, but it can be difficult to estimate the cost basis for these items.
Production Income Category
For self-produced inventory, Ambrook comes with a preset category called Change in Value of Inventory. This is an income category that appears in the Other Income section of your P&L statement. We typically recommend this because it lets you account for raised inventory properly while also making it clear the income is non-taxable, for cash basis filters.
In certain situations, specifically when you aren’t using the market value as the “cost” of your self-produced inventory, you may want to have a different Production Income Category and Expense Category - but we recommend you discuss this with your financial professional first.