To understand Summarized Inventory (non-transactional) Posting’s effect on the Income Statement, it is important to know how functions within Agvance affect the cost of sales accounts. The sales total on the Sales Register report should directly correspond to the income/sales accounts, but cost of sales is not quite as straightforward. Several transactions affect the cost of sales both directly and indirectly.
Purchase Invoicing
A Purchase Invoice has a direct effect to the cost of sales account. Purchase invoicing updates average and last cost. Purchase Invoice G/L posting is shown below:
Vendor Journal Entry | Debit | Credit |
|---|---|---|
Total amount owed vendor | Location Accounts Payable Acct | |
Total amount of each department's purchase | Cost of Goods Sold/Purchase Account | |
Discount | Total disc to location's A/P disc account | Department's discount account |
Estimated/Actual Freight | Department's Freight Account | Estimated Freight Liability (estimated) - Actual freight is included in the AP vendor total |
Inventory Amount on Hand
Other transactions have an indirect effect on cost of sales because they change the product's amount on hand (i.e., invoicing, Purchase Receipts, Delivery Tickets, Blend Tickets, Inventory Adjustments, and Manufacture Inventory). Invoice G/L posting is shown below:
Customer Journal Entry | Debit | Credit |
|---|---|---|
Invoice Total | Location's Accounts Receivable Acct | |
Total Sale for Each Line Item | Department's Sales/Income Account | |
Sales Tax (if used) | Location's Sales Tax Liability Account |
Manufacture Inventory
All inventory manufactures affect the cost of sales for both the finished good and all raw ingredients, either at billing or at the time of the inventory manufacture, depending on the manufacture formula setting. The journal entry created by an inventory manufacture is shown below:
General Journal Entry | Debit | Credit |
|---|---|---|
Total cost of all raw ingredients | Department's Cost of Goods Sold for the Finished Product (manufactured product) | |
Cost of each raw ingredient | Each Department's Cost of Goods Sold for the Raw ingredients |
Inventory Adjustments
Inventory Adjustments do not directly affect the general ledger if not transactional posting. However, any changes to amount on hand will influence the value of inventory which determines the journal entry created by Post Inventory to G/L. Bear this in mind when doing a large adjustment or an adjustment to a high-cost product. To keep income statements accurate for each month, adjust inventory to physical every month before posting inventory to G/L. If this is not possible, year-to-date figures on the Income Statement will be correct but monthly figures may be skewed.
Average and Last Cost
Cost of sales is also affected indirectly by changes to average or last cost. This can happen at purchase invoicing, manufacture inventory, and direct edits at the Product Pricing tab. All these changes are registered in the Cost Audit, found on the Product Pricing tab.
Company Owned Value of Inventory
It is important to always run the Company Owned Inventory Statement before posting inventory to G/L. This report is found at Accounting Reports / Inventory / Inventory Status / Statements / Company Owned. Agvance uses this formula to determine the value of the inventory actually owned by the company:
(amount on hand + unprocessed delivery/blend tickets – unprocessed purchase receipts) * cost
This value is used when the Post Inventory to GL function is run to adjust the value of unsold inventory into the inventory asset accounts. Incorrect costs or amounts on hand can cause this value to be incorrect.
Post Inventory to GL
This function moves the value of unsold inventory to the appropriate inventory asset accounts, updates the purchase or cost of goods accounts to the actual cost of total sales, and adjusts for any amount on hand or cost changes. This is done prior to ending each fiscal month, and can be done throughout the month as well. Post Inventory to GL posting is shown below:
General Journal Entry | Debit | Credit |
|---|---|---|
Previous column - Current inventory asset account balance | Inventory asset accounts | |
Previous column - Current inventory asset account balance | Cost of Goods | |
Current Value column - Current value of company owned inventory | Inventory asset accounts | |
Current Value column - Current value of company owned inventory | Cost of Goods |
The old value of the inventory asset accounts is removed and replaced by the current company owned inventory value for each inventoried department. Each cost of goods account is increased by the old inventory asset account value and decreased by the new company owned inventory value.
Troubleshooting
If you believe your cost of sales account has an incorrect value, it may be necessary to involve SSI support to find the source of the problem. Following is a list of items to check:
- Run the Income Statement month by month to find the first fiscal month appearing incorrect. It is important to know when the problem started.
- Run the Account Detail report for the department's inventory asset account. This report is found at Accounting Reports / G/L / G/L Reports / Account Detail. Any journal entries made to this account outside of the Post Inventory to GL journal entries will directly affect the Cost of Sales/Income Statement.
- Run the Sales Register with the Totals Page Only and Gross Margin Calculation options checked. This report is found at Accounting Reports / Sales / Sales Register. Compare this report to the Income Statement.
- Substantial inventory adjustments will impact the Income Statement for the fiscal month. To find the cost of inventory adjustments, run a report found at Accounting Reports / Inventory / Inventory Status / Inventory Adjustments. Be sure to check the Product Recap option to get the total cost value for each product.
- Make sure the same cost (average or last) is being used to run the Company Owned Inventory Statement when the Post Inventory to G/L function is used.
- Look at the current and archived Company Owned Inventory Statements. Find any costs or inventory values that look incorrect for the department that posts to that cost of sales account.
- If costs are correct, have they changed much over time? A consistent increase or decrease can have an especially big impact if posting using Last Cost instead of Average Cost.
- If a specific product had (or has) a cost problem, run a Cost Audit report for that product. To run this report, go to Accounting / File / Open / Product and, on the Pricing tab, choose Audit Costs. This report can also be run at Accounting Reports / Inventory / Inventory Status / Product Cost Audit.
