Tariffs? How to Track their Costs">
Tariffs are in the news daily. Whether you are for or against or neutral about them, they will most likely affect your financials. Most companies are reporting that tariffs are significantly impacting their net income when their products are being imported. How do you know how much impact the tariffs are having? You have to track them.
Tariffs are a tax. It has a waterfall effect. The importer pays the tax on the goods which increases their cost of producing or offering the goods for sale in the United States. Most often the importer then raises their prices for the same goods to sell them to the final consumer. Many companies have tried to absorb at least a good portion of the new tariffs but some companies already have a low gross margin and cannot. Mike Musheinesh, CEO of Detroit Axle, noted that automobile parts are one of the most heavily tariffed products and that many small auto-parts companies have had to shut down. (CNN interview titled “Trump’s Trade War”) Consumers are the ultimate payers of the taxes.
Questions Company Stakeholders will Ask
It is uncertain what will happen with tariffs in the future. What is known is that businesses will have to explain differences in their financials to their stakeholders. They will have to explain why profits are down and costs are up. There will be many reasons profits will change – this year, most of them will probably be tied to tariffs. Executives and Board members will be asking questions like:
- How much was spent on tariffs?
- What products were charged what rates?
- Did tariffs cause changes in personnel? (Down or up)
- How did tariffs affect other financial elements like other taxes?
- Did tariffs affect finished goods prices? If so, by how much?
PricewaterhouseCoopers Opinion - In Depth Report
Tariffs incurred directly on purchased items should first be shown on the balance sheet according to PricewaterhouseCoopers.
“Similar to other sales, value-added, or excise taxes imposed on the purchase of various goods, the cost of tariffs incurred directly in connection with the acquisition of specific goods should be included in the acquisition cost of those goods for inventory costing purposes. Tariffs represent a cost incurred to bring an article to its existing location, as discussed in ASC 330-10-30-1. As a result, tariffs increase the cost of inventory and may impact the outcome of a company’s assessment of the recoverability of the inventory using the lower-of-cost-and-net-realizable-value (NRV) framework in ASC 330-10-35-1B.”
(Read the full PWC in depth report here.)
The Bottom Line
Clients First Business Solutions has created an enhancement to Acumatica - the Cloud ERP that automatically applies the correct tariffs to a Purchase Order Receipt. The customization uses the standard Acumatica landed cost function to record individual duties and tariffs categorized by their Harmonized Tax Schedule (HTS) codes. Once the definitions are input to the custom screens, Acumatica’s Landed Cost function can automatically apply the duties and tariffs to the Purchase Receipt. Those tariffs and duties are then applied to the inventory item’s cost in the defined inventory General Ledger account.
Watch the Tariff Tracker demo video on YouTube. Clients First's Tariff Tracker introductory price is only $799 for the first year! Call the Clients First sales team for more information. 800.831.8382
Even more good news! Clients First has made the same customizations for Odoo!
Tags: Tariff Tracker
