You may not even need all of these on your chart of accounts, depending on your business circumstances (for instance if you own or rent your land and buildings). If you find that you have excess accounts in your accounting system that you are not using, go ahead and take the time to delete them. Cleaning house will make everything run smoother, from bookkeeping to reporting. It’s an ordered list of sections, or accounts, for all of the transactions that go through your winery.
- It’s crucial because accurate financial records help businesses make informed decisions, manage costs effectively, and ensure compliance with tax regulations.
- Such records provide important ongoing accounting and internal control data about the grapes throughout the production process.
- Over time, they reveal hidden insights that lead to smarter business decisions.
- Before investing money in distribution, first, develop a solid pricing strategy.
Seven Steps to Set Up a Cost of Goods Sold System for Your Winery
We have a team of experts who are familiar with the ins and outs of this industry. We can provide the tools and resources you need to manage your finances effectively. Our team can confidently answer your questions and guide you through the process easily, and we are here to help wherever we can. First, create temporary accounts within the “other expenses” section of your profit and loss (P&L) statement. We wrote an entire blog post about your expense accounts which you can geek out on here. In short, the Expense section of your chart of accounts contains your “GS&A” accounts–that is, your General, Selling, and Administrative expenses.
How can understanding the cost of goods sold (COGS) benefit a winery?
Since the wine industry can be fickle, it is essential to make sure you track everything carefully. There’s the depreciation on the production facility and equipment, and the labor by the winemaster and the rest of the staff, and utilities, and production supplies, and testing expenses, and so on. So, for example, if 1,000 gallons of Merlot are aged in barrels for six months, then that is 6,000 gallon/months of Merlot. And, if the cellar operation accumulates a half million dollars of costs in a year, that cost is assigned to the Merlot based on its proportion of the total gallon/months of wine kept in the cellar. When managing a winery, one of the most crucial decisions you’ll make is how to handle your accounting.
The Strategic Role of Financial Modeling in Scaling a CPG Brand
GAAP for financial reporting requirements of certain financial statement users. Smaller wineries may be able to modify reporting as needed to accommodate resource and budget constraints as well as any system limitations. Cellar accounting focuses on tracking the inventory of wine within a cellar, which includes monitoring the quantity and value of stored wine. This type of accounting is essential for both individual collectors and commercial entities to manage their stock, understand consumption patterns, and assess the financial value of their wine collection. Managing them strategically gives you a crystal clear picture of your winery’s financial health.
Expense accounts
First, wines could be kept in storage for more than one year, so you have to allocate costs not just to several types of wine, but also to several vintages of each varietal. And on top of that, the winemaster might decide to engage in blending activities somewhere in the production process, which mixes wines together, and, of course, complicates the cost accounting. And, there can be wine shrinkage, where the wine evaporates while it’s aging in the oak barrels.
As with sample losses discussed above, wineries should track and account for wine poured, free of charge, for owners and employees in the tasting room. Even if a winery has a dedicated accounting team, it can be useful for management to understand the following suggested best practices from a high level. These winery owners are usually highly involved in most aspects of the business. Many, however, lack an accounting background and elect to outsource this area to a bookkeeper. Wineries with onsite retail operations, such as tasting rooms or wine clubs and e-commerce, often benefit from implementing a point-of-sale (POS) system.
We also like to break income out into different accounts if it has different sales tax treatment. For instance, if some food you sell is taxable and some are tax-exempt, it is a good idea to keep these two types of revenue in separate accounts. As another example, we keep venue rental separate from other event income, as it is taxed differently by the Washington Department of Revenue. The specific accounts in the equity section of the chart of accounts vary depending on your business structure, i.e. the number of owners you have, whether you’re an S-Corp or a partnership or an LLC, etc. There are a few places in the chart of accounts, where we like to add additional accounts to keep track of details that we will need at tax time. When looking at your financial reports, we recommend always starting with a collapsed view, to get a high-level understanding of your business performance.
Attempting to avoid payment of excise taxes for any reason, including the falsification of production levels or loss amounts, can result in the revocation of a winery’s permit. It’s also essential to understand the needs and reporting requirements of the users identified in Step 1. GAAP basis and may even request a report from an independent CPA to provide various levels of assurance as to the company’s compliance with U.S. In the wine industry, a suggested best practice in accounting for COGS is to follow U.S. This is particularly true for larger wineries, which often must adhere to U.S.
If you have questions or would like any assistance with finding solutions tailored to your winery, please contact your Moss Adams professional. For more information on how to set up a COGS system for your winery, contact your Moss Adams professional. Taking time up-front to define how certain overhead items will be allocated can offer more consistent results year-to-year and build confidence in the information provided by the system, while reducing confusion and wasted time.
This option can work well and has the advantage of keeping these expenses out of the main section of Profit & Loss if you are only calculating and adjusting COGS once a quarter or once a year. Many winery owners might wonder if the purpose of maintaining books is solely to get the tax return right. While accurate tax reporting is essential, the primary goal of accounting goes beyond tax preparation—it’s about enabling better business decisions. By understanding how all the transactions fit together in your winery business, you can plan strategically, manage cash flow more effectively, and ensure financial stability. Part of the appeal of owning a winery lies in the transformation that changes the fruit of a relatively common plant into a unique and distinctive creation.
You should consult with your accountant to see how they prefer this section of the chart of accounts to be organized. One note, however, you should never see a balance in an account called “Opening Balance Equity.” If you have one, you can guarantee your books need a bit of cleanup. For this reason, we keep the equity accounts In our winery chart of accounts template, very generic. The chart of accounts generally lists the most liquid assets first (cash and equivalents) and moves from there to the less liquid assets (property and equipment). This section of the financial statements contains everything you own, as opposed to the liabilities section which contains everything you owe. Sometimes the accounts you need will be dictated by your business circumstances.
Edited by CPAs for CPAs, it aims to provide accounting and other financial professionals with the information and analysis they need to succeed in today’s business environment. Best practices noted in the smaller winery category are completed on a more regular basis, and management reviews the financial metrics of the winery monthly. Accounting should also monitor profitability on a monthly basis, investigate variances versus expectations, and provide management with forward looking financial forecast. Before investing money in distribution, first, develop a solid pricing strategy.
