Inventory valuation is used to determine the value of your stock at any given time, which is important for making informed decisions about buying and selling inventory. Production costs should be allocated to the various bulk wine in the cellar based on the type of processing activity and the stage of the wine in the process. Crush and ferment costs, which may include payroll, supplies, allocated overhead, and depreciation or rent related to crush equipment, should only be allocated to the current vintage crushed. On the other hand, cellar aging costs are typically shared by all wines in the cellar.
Let’s clarify a few of the rules around meal deductions for your winery in 2024. As you might guess, the LIFO method assumes the newest inventory items (the last in) are the first to be sold (the first out). This is unlikely the case in the wine industry since older vintages are typically wine accounting sold before newer ones. While they are involved in the winemaking process, they also work in other areas, like administration and finance. For these individuals, determine how much of their time is involved in the winemaking process and apply the percentage to their total payroll costs.
Equity accounts
People who plant vineyards must be in it for the long haul, and not mind excessive spending with a return on investment in years rather than months. If the grower has a vineyard without a winery, the cash accounting method of bookkeeping is still acceptable because the crop is planted, grown, and harvested in a cycle that typically spans one growing season. First, in accounting terms, vineyards—the fields where the grapes are grown—operates as a traditional farm. This means that farmer built arbors or trellises to hold the grapevines, planted the grapes, waited for them to mature, and harvested them. The farmer handles pesticides, replanting, and other issues with a vineyard.
There are several ways to allocate costs, but regardless of the method used, it’s important to apply it consistently. GAAP and it also makes it easier to spot variances when they do occur. Once a methodology is determined and adopted, a winery can fine-tune its data capture and reporting procedures to ensure the information used to cost its products are accurate. In order for a winery to use LIFO for tax purposes, it is also required to use it for financial reporting purposes.
Manage Costing in InnoVint and
One advantage of using parent accounts is that you can view your financial reports in both collapsed and expanded forms. When you view your reports in a collapsed form, all of the subaccounts will fold up into the parent account. QuickBooks will allow you to do this, as well as most other financial reporting platforms including Fathom, which is the platform we use for performance reporting with our clients.
In the second article we dive into steps for setting up a system and best practices to derive this metric, and in the final article we discuss specific COGS insights for wineries by case volume. Leveraging our proprietary winery data and industry reports, we offer industry benchmarking services. We compare your winery’s performance against industry peers, providing insights into key metrics such as gross margin, production efficiency, and distribution effectiveness. This benchmarking allows you to identify areas for improvement and make strategic decisions without losing sleep. Accounting, at its foundation, is a process of organizing financial information. Transaction-level data is sorted into bigger buckets so that the information can be summarized and reported on in an organized and logical manner.
Tasks Your Winery Bookkeeper Can Offer
Using LIFO for tax purposes requires you to use it for financial reporting purposes. This can be achieved while still using the specific identification or FIFO method by recording a LIFO reserve on your books. This method involves tracking each item from the time of purchase through to when the wine is bottled. Meticulous record-keeping, data collection, and data segregation make specific identification highly accurate.
Financial reporting operates under GAAP guidelines and allows your company to remain compliant with policy boards. In contrast, management reporting analyzes department performance as well as its relationship to expenditures and returns on investment (ROI). In other words, management reports are the diagnostics on your winery’s financial health. We fall into a regular cadence of weekly bookkeeping, monthly reporting, and quarterly check-ins. Segregating these costs makes the allocation of overhead (which we’ll discuss a little later) a little easier and more accurate. Now that you understand the two primary accounting terms related to production, we need to dig deeper into the different ways to develop a value for your COGP, starting with the groups of costs involved.