Inventory Levels on P&L

KE Paradise

We run Reckon with all our parts as inventory items.  We also have several mulitcurrency suppliers.

Our COGS purchasing account is Purchases
Our Sales account is Sales
Our Asset account is Stock on Hand - (Other Current Asset)
Accrual Basis

On the p&l  the cost of these items is only reflect after they are sold, not what we have purchased and paid for during the same period.  Therefore it's not really a true reflection, because we have purchased a whole lot of products but they are still sitting in the Stock On Hand ledger.  Is there a way around this?  

I am considering changing all my parts to have the asset account of 'Closing Stock' (there for a COGS account) so that my P&L is a truer picture of my business.  But could this have other implications?  I have saved a back up copy of the file and opened it in a new name as a test, then I was going to make this change.  But with about a thousand parts, its a big job if it doesn't work.  

I would appreciate any assistance or advice.

Michael Graham

Your current P&L is a true reflection of your business as it only contains those costs of goods sole that are directly attributable to your income. You cannot accurately track Gross Margin if you don’t run a perpetual inventory system. The alternative is the Post all cost of goods sold to your P&L and then do an inventory adjustment at the end of each Qtr or month to determine your gross margin for that period. 

I would suggest you have a conversation with your account on what is the most appropriate method of reporting for your business.

 

Michael

Zappy

Mike that's a great explanation. Hi Kari, as Michael has pointed out when you first buy your stock it is classed as an asset. It doesn't become a cost of sales expense until you sell the item. Now you can achive what you want to do but it would entail not running inventory. I  would recommend you discuss this with your accountant or business tax advisor. Remember, the only silly question is the one you never ask:)

KE Paradise

So perhaps it would be pertinent for Reckon to allow for a 'include Stock on Hand in P&L' toggle button in the reports area so that you can get a true 'cash' profit and loss.   Doing journal adjustments each period is cumbersome. 

Zappy

Kari you don't need to journal in the closing stock figure. You can use perpetual inventory as the system is currently setup. Your suggestion sounds rational at first blush but it is not the way the system is supposed to work. It is not the way any other accounting system works. You can have a "true cash profit and loss" if you post all purchase to a purchases account and simply disregard inventory.

Zappy

Kari what would usually happen is you would have a opening stock figure add in the purchases and then at the end of the month, net off the closing stock figure to arrive at the cost of sales. What your system does is relieve you of this tedium.

John G

Hi KE Paradise,

Thanks for asking the Reckon Community.

Accounts Business has two types of stock items:

• Inventory Parts for Stock you track and are stored first in the Stock on Hand Balance Sheet account and transferred to COGS as you sell it, item by item.
• Non-Inventory Parts, for Stock you do not keep track of.  These are charged to the COGS accounts immediately and in total.

Do take note of Michael's and Kevin's comments above and do talk with your Accountant for the best way to apply these Stock types to your business.  

regards,
John

Zappy

John mate, thanks for that. its important to ask the right question if you are going to get useful information. I should have mentioned the ability to create non stock and stock and non stock parts

KE Paradise

Thanks Gentlemen,

As state in the first question we use mainly Inventory Parts.  I am speaking to my accountant and also another business that I know is experiencing a similar issue.

Thanks
Kari

Zappy

Kari that's great it's important to understand what it is you are trying to achieve and also the way the accounting is implemented. There's a reason the system is built as it is. It's trying to deal with all businesses in a structured and proper way. This way the information that comes out the other end will be of greater use.