Storage Cost Journal Entry
Inventory Storage cost is the cost that company spends to keep the inventory in the warehouse.
These costs can have a significant impact on a company’s bottom line. In order to minimize these costs, it is important to carefully consider the type of storage space that is needed and the location of the facility.
For example, storing inventory in a climate-controlled warehouse will generally be more expensive than storing it in a standard warehouse. However, if the inventory is temperature-sensitive, the extra cost may be worth it to prevent damage.
In addition, companies should consider whether they need to store inventory on-site or they can utilize off-site storage facilities. Utilizing existing space at another company’s facility can often be less expensive than leasing or buying new space. By carefully evaluating inventory storage needs, companies can save money and ensure that their inventory is properly protected.
In any business, it is vital to keep costs low in order to maximize profits. One area where companies can control costs is inventory storage. By carefully considering the type of inventory being stored and the most efficient way to store it, businesses can minimize the amount of space needed and reduce the amount of time spent searching for items.
In addition, utilizing inventory management software can help businesses keep track of their inventory levels and minimize the cost of storage by ensuring that items are only stored when absolutely necessary. By taking these steps, businesses can keep their inventory storage costs under control and improve their bottom line.
The storage cost is not included in the inventory cost. It happens after the production finish. The company needs to record the storage cost as the expense on the income statement.
The Inventory storage cost includes:
- Warehouse Cost: It is the cost that company spends on the building and warehouse. The costs include the warehouse depreciation, utility expense, insurance, and the workers who work in the warehouse.
- Finance Cost: If the company borrows the capital to invest in the storage cost, the finance cost is also included in the storage cost as well.
- Safety Security: It is the cost that company spends to keep the inventory of the proper quality.
- Tax: Any taxes that relate to the warehouse and storage of the inventory.
Journal Entry for Storage Cost
The cost that the company spends to store the inventory in the warehouse, will be recorded as the operating expense on the income statement. It is not part of the cost of the inventory on the balance sheet.
When this cost incurs, company needs to record them as the expense on the income statement immediately.
The journal entry is debiting storage cost and credit accounts payable.
| Account | Debit | Credit |
|---|---|---|
| Storage Cost | 000 | |
| Accounts Payable | 000 |
The storage cost will increase the expense on the income statement.
Example
Company ABC purchases the inventory from the supplier cost $ 250,000. The company needs to store the inventory for several months before selling them to the customers. During the month, company spent $ 5,000 to store the inventory in the warehouse. Please prepare the journal entry for the inventory storage cost.
The storage cost is the cost that company spends to keep the inventory in the proper condition. It is not part of the inventory cost. The company needs to record the storage cost as an expense on the income statement.
The journal entry is debiting storage cost $ 5,000 and credit accounts payable $ 5,000.
| Account | Debit | Credit |
|---|---|---|
| Storage Cost | 5,000 | |
| Accounts Payable | 5,000 |
The journal entry increases the expense on the income statement to $ 5,000. It also increases the accounts payable for the same amount on the balance sheet.