Inventory or stock is the goods and materials that a business holds for the ultimate goal of resale. Inventory management is a discipline primarily about specifying the shape and placement of stocked goods.
DB - Asset Account: Inventory
CR - Liability Account: Accounts Payable
- Inventory: Each product has an Inventory GL Account associated with it.
- Accounts Payable: The default Accounts Payable account. This account can be changed to a different account in Setup, Entity Setting, Shipment Receipts, Credited Account for New Shipment Receipts.
When a bill is created and linked to the shipment receipt, the system would reverse the entry made at time Shipment Receipt is posted and then post a new entry using the amount that is on the bill that looks like this
DB - Asset Account: Inventory
CR - Liability Account: Accounts Payable for Selected Supplier
An invoice, bill or tab is a commercial document issued by a seller to a buyer, relating to a sale transaction and indicating the products, quantities, and agreed prices for products or services the seller had provided the buyer. Payment terms are usually stated on the invoice.
The General ledger has the below entry passed for recording the inventory transactions:
DB - Asset Account: Accounts Receivable - Customer Sub Account
CR - Revenue Account: Revenue
Accounts receivable are legally enforceable claims for payment held by a business for goods supplied or services rendered that customers have ordered but not paid for. These are generally in the form of invoices raised by a business and delivered to the customer for payment within an agreed time frame.
DB - Asset Account: Bank Account
CR - Asset Account: Accounts Receivable - Customer Sub Account
Accounts ReceivableThe default Accounts Receivable account has sub-accounts for each customer.
Revenue AccountEach product has a Category associated with it. The Category setup defines the revenue (and expense) accounts to be used when creating GL journal entries.
Bank AccountThe Receive Payment screen allows you to select the Receive to Account.
Cost of Goods Sold (COGS)s
The cost of goods sold (COGS), also referred to as the cost of sales or cost of services, is how much it costs to produce your products or services. COGS include direct material and direct labour expenses that go into the production of each good or service that is sold.
When calculating the cost of goods sold, do not include the cost of creating goods or services that you don’t sell.
COGS does not include indirect expenses, like certain overhead costs. Do not factor things like utilities, marketing expenses, or shipping fees into the cost of goods sold.
DB - Expense Account: Cost of Goods Sold
CR - Asset Account: Inventory
The amount for the journal entry is calculated by the Inventory Costing method (defined in the Entity Settings). Methods are either FIFO or average cost. If there are multiple line items shipped on the Sales Order, the above journal is created for each product.
COGS = Beginning Inventory + Purchases During the Period – Ending Inventory
COGS and Business Profits
Gross Income = Gross Revenue – COGS
Net Income = Revenue – COGS – Expenses
Your cost of goods sold can change throughout the accounting period. Your COGS depends on changing costs and the inventory costing methods you use.
The three inventory costing methods are:
- FIFO (first in, first out)
- LIFO (last in, first out)
If you use the FIFO method, the first goods you sell are the ones which you purchased or manufactured first. Generally, this means that you sell your least expensive products first. As a result, you record a lower cost of goods sold.
Under the LIFO method, you sell the latest goods you purchased or manufactured. Your COGS might be higher.
With the average method, you take an average of your inventory to determine your cost of goods sold. This keeps your COGS more level than the FIFO or LIFO methods.
Expense AccountEach product has a Category associated with it. The Category setup defines the (revenue and) expense accounts to be used when creating GL journal entries.
Asset AccountEach product has a Inventory GL Account associated with it.
Bills of Materials (BOM)
A bill of materials or product structure is a list of the raw materials, sub-assemblies, intermediate assemblies, sub-components, parts, and the quantities of each needed to manufacture an end product. A BOM may be used for communication between manufacturing partners or confined to a single manufacturing plant.
The Inventory Management features of VersAccounts allow you to track the quantities and values of all of the items bought and sold by your business. Before we go into the details of using the system, you should familiarize yourself with some of the terms we will be using
Approved VendorFor each part, you can specify suppliers capable of selling the part to you. For each approved vendor, you can specify the minimum order quantity, the negotiated price for that particular quantity, and the expected lead time for delivery.
Batch QuantityThe quantity produced when a Part's related Bill-of-Materials is built.
|Inventory Type||Default Product Category||For Purchase||For Sale|
|Raw Materials||Raw Materials||X|
|Finished Goods||Goods Purchased for Resale||X||X|
Bill-of-MaterialsYou can combine specified quantities of Parts to produce other Parts within your inventory. The Bill-of-Materials is a list of the Parts and quantities required to build a Batch Quantity of a Part.