Manual
Costing and the general ledger
Two kinds of entries
Every movement of stock writes an item ledger entry, for the quantity, and at least one value entry, for its value.
| Item ledger entry field | What it holds |
|---|---|
| Entry Type | Why stock moved: see Item ledger entry types. |
| Document Type, Document No | The posted document or journal it came from. |
| Location | Where the stock moved. |
| Quantity | In the item’s base unit: positive in, negative out. |
| Remaining Quantity | For stock that came in: how much of it is still on hand. |
| Open | Whether some of it is still on hand. |
| Cost Amount, Sales Amount | Its value and, for a sale, what it sold for without VAT: the sums of its value entries. |
| Source Name | The customer or vendor, for a sale or purchase. |
| Value entry field | What it holds |
|---|---|
| Item Ledger Entry Type, Item Ledger Entry No | The movement it values. |
| Valued Quantity, Cost per Unit, Cost Amount | The quantity, and its cost. |
| Sales Amount | For a sale, the amount without VAT, in local currency. |
| Cost Posted to G/L | How much of the cost has reached the general ledger. |
An entry can have several value entries: a receipt’s value, then the invoice’s correction of it; a shipment’s cost, then the invoice’s sales amount. Value Entries on an item ledger entry shows them.
How stock leaving is costed
Stock leaving a location always takes quantity from the oldest stock still on hand there (the open entries with a Remaining Quantity), so you can see exactly which receipts are still in the store. The item’s Costing Method decides the cost:
| Costing Method | The cost of stock leaving |
|---|---|
| FIFO | The cost of the receipts it was taken from, oldest first. A bake that takes 120 KG of flour, when 100 KG are left of a receipt at 3,600 a KG and the next came at 3,700, costs 100 × 3,600 + 20 × 3,700 = 434,000. |
| Average | The item’s average cost: the value of all its stock on hand, at every location, divided by the quantity. |
An item’s Unit Cost is always the value of its stock on hand divided by the quantity, worked out again as entries are posted.
Because stock can’t go below zero and every receipt has its cost when it is posted, the cost of what leaves is known at once. When a vendor invoices stock at a different cost from its receipt, the difference is passed on at once to whatever already took that stock: a sale’s cost of goods sold, an adjustment, a transfer, or the item an assembly made from it.
What inventory posts to the general ledger
Each value entry debits or credits the inventory account of its location and inventory posting group, and posts the other side to an account that depends on why stock moved:
| Movement | Inventory account | Other side |
|---|---|---|
| Purchase invoiced, or received and invoiced together | Debited | Direct Cost Applied Account (General Posting Setup) |
| Purchase received, not yet invoiced | Debited | Goods Received Not Invoiced Account (General Posting Setup) |
| Sale (shipped or invoiced) | Credited | COGS Account (General Posting Setup) |
| Positive or negative adjustment, count difference | Debited or credited | Inventory Adjmt. Account (Inventory Posting Setup) |
| Assembly consumption and output | Credited for the components, debited for the item made | Inventory Adjmt. Account, which the two balance |
| Transfer | Credited at one location, debited at the other | None: the two sides balance each other |
Inventory Posting Setup names, for each location and inventory posting group, the Inventory Account and the Inventory Adjmt. Account. At Passion Bakery every location uses:
| Inventory posting group | Inventory Account | Inventory Adjmt. Account |
|---|---|---|
| RAW | 110500 Raw Materials Inventory | 220300 Inventory Adjustments |
| PACKAGING | 110510 Packaging Inventory | 220300 Inventory Adjustments |
| FINISHED | 110520 Finished Goods Inventory | 220300 Inventory Adjustments |
A document’s or journal’s inventory postings are made as one balanced G/L transaction, each account’s amounts added up by dimension codes. The G/L entries carry the document’s number, so General Ledger Entries filtered on it shows the sale and its cost side by side.