Consignment Stock HELP

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We currently receive stock on consignment from one of our suppliers. The way we are currently doing this IS NOT working, our COG and SOH is never correct. At present we are Creating a PO for example 10 Lollies. We receive the stock and do an item receipt ONLY at the value of the lollies. Then as we sell the lollies we advise our supplier of the sale whom then send us an invoice. however as the invoices are for 1's and twos and you can only allocate one bill to each item receipt we are creating a bill that is not linked to the item receipt and using the expense tab and putting the cost to Sales (Supplier). This is resulting in the item receipt showing in our aged payables when it should not and the item receipt not having a bill allocated.

Can someone suggest how we should be doing this where our SOH & COG will be represented accurately and there will be no cost reflected until we have actually sold the product, and the item receipts to be closed off.

Sorry if this has already been asked, I'm desperate for answers, have been racking my brain all day and just can not figure out a better way to do this.
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monique

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Posted 3 months ago

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Linda Putland, Accredited Partner

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Hi Monique - I have pasted text from a document that I wrote for a client a long time ago - 2006!!!  have a read and see if this method would work for you?

cheers 
Linda

Firstly some Setup tasks:

  • You need to create 2 Accounts Payable accounts - one for normal Accounts Payable which is the money you owe to suppliers and one for Consignment stock with is the value of Stock you DO NOT have to pay for yet.
  • Your Consignment stock items are setup so that they show in the Balance Sheet in a separate asset account to your other stock lines - so you can see the value of stock on hand of these items... if you happen to buy in these items directly and then sell them - they will still go here - but these circumstances should be rare and hopefully you would buy them in and then sell them out straight away.
  • Item Receipts never have GST on them - and Item receipts will all be entered to the Consignment Stock A/P account
  • Bill credits to adjust the Consignment Stock A/P account balance should always have the GST removed - ie they should be entered with ex tax amounts

Process to follow:

 

When receiving a shipment of stock on Consignment:

  1. Enter an Item Receipt for the Supplier - using the Consignment Stock A/P account
  2. Pick up each item received and its value at the time - there will be no tax.
  3. the effect of this is to Increase value of stock on hand (consignment stock asset account) and to increase the value of the Consignment Stock A/P account
  4. In theory the value of the Consignment Stock Asset account should always equal the Value of the Consignment Stock A/P account - ie they effectively remove themselves from your balance sheet - (so finding that their balances are different when you review your balance sheet is one way to know that there has been movement here that should trigger something happening)...

When selling items to customer that you have taken from Consignment holdings:

  1. Sell through normal way on an invoice - pick up the stock item to remove it from stock
  2. the effect of this is that the cost of the item will be removed from the consignment stock asset account and transferred to the appropriate cost of goods sold account as an expense - eg the Smorgons Steel COGS account

If using the items within the business for other jobs (ie will be invoiced out to client under Materials service charge along with other things):

  1. Create a customer called .Internal
  2. Raise an invoice for the items taken out of Con Stock - pick up each item - qty and let the price flow through
  3. on the last line - pull up that Item we created today called Con Stock Used - enter it as a minus (with GST) for the amount required to make the invoice NIL
  4. Save this invoice - this will remove all the sales totals from the transaction but will leave the stock transfer from consignment stock Asset to Cost of Goods Sold.

When you receive the bill from the Supplier for the Con stock used:

  1. Enter the bill (using the normal Accounts Payable account) to the Supplier - for the correct date of the bill and pick up GST etc - expense the cost directly to the appropriate Cost of Goods sold account
  2. Enter a Bill Credit (using the Consignment Stock A/P account) to the Supplier - for the same date as the bill above - choose the same expense account as above - but enter the amount with no tax codes and for the above value excluding GST. 
  3. Note:  if you find that the Consignment stock asset and the Consignment stock A/P accounts now have different balances - this means that the values of the stock when it was sold was different than the value now when you have been billed - and will require an adjustment to bring them back into line - haven’t quite worked out the best way to handle this yet - we will cross that bridge when we come to it!.  will need to either change stock value to match A/P account (and adjust COGS) or adjust A/P account to match stock value (and adjust COGS)...

Monique,

I'm not an expert at accounting but I think the working solution is whenever you create a bill for your vendor, you will need to split your existing item receipt so that it has one item receipt with the same qty with your bill and they can be linked. And the splitting process will happen every time you create a new bill. The issue is you have to modify the original item receipt and create a new one.

Does it sound like a solution?

Thanks,

Phuong