inventory adjust

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Hello Reckon experts,
Could anyone explain to me how Reckon treats inventory please?
1) If the inventory report calculates the value of stock on hand based on average cost, what is the purpose of the cost / sell pricing? 
2) If we adjust the price in the actual item (increase price) rather than via adjust quantity/value on hand what issues does this cause if any?

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Gillian

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Posted 1 month ago

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Kris Williams

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Without inventory purchases go to an expense account and sales go to an income account, and it’s very easy to interpret a profit and loss.
With inventory Purchases go to Stock - an asset, and Sales decrease the stock and work out what the cost of these sales were based on items and purchase price, and splits part of the sale to Cost of Goods sold. I never use inventory items unless Tracking inventory is something I really need.
i hope this is correct and understandable. I’m sure there are others out there who will correct if notI can’t really answer No 2, it’s complex, again there are people who can explain better than I, but I don’t think it makes a difference as at the end of the year as a stocktake figure is used to adjust the stock on hand account anyway 
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Linda Putland, Accredited Partner

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Hi Gillian - further to the explanation above... and specifically to your questions.
1) Reckon uses Average cost - so the total value of purchases of an item (regardless of what they are) divided by the total qty on hand at any given point - determines the average price.  It is this average cost that is used whenever a sale transaction is raised for an item, the stock on hand value is reduced by this value and the cost of goods sold account for the item is increased by this value.  The purpose of the Cost price in the Item setup - is to provide a default value for entering purchase orders/bills, running various reports etc... 
2) As described at 1) above, changing the actual cost value in the item setup - doesnt have any effect on the stock on hand values or change what costs are used to adjust stock when processing sale transactions.  If the average price of a stock is incorrect (and there are lots of ways this can happen)... then the only way to correct it is via the Adjust quantity/value on hand feature.  You need to ensure that the stock quantity AND the value of the stock is corrected... in order to correct your average pricing which is used on future sale transactions.

Always remember

1. "garbage in equals garbage out".  Your reports are only ever as good as the data entry.
2.  Stock is profit - more stock means more profit, less stock means less profit..  Your P&L report's Gross Profit figure is only ever as accurate as your Stock on Hand figure in the Balance sheet.  
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Gillian

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That's great, thank you for taking the time to answer Linda.  We track nearly all inventory but the pricing is inconsistent because of exchange rates, different suppliers etc so the cost price is never the same.  My concern is what happens with sales, profit, tax calculations.... for example, "something" cost price is $100 but the average price is saying $125.  Does that cost price of $100 have any effect on profit margin reports, GST and/or BAS calculation reports and so on?  

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Linda Putland, Accredited Partner

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Profit margin reports are only concerned with items that have been sold - therefore the sale of "something" for say $200 - will have the average cost of $125 added to the COGS account when the Stock on Hand figure in the balance sheet goes down by $125.  The Gross profit Margin will be $75...

GST/BAS calculations are only concerned with input tax credits on purchases - so the purchase of "something" for $100 plus GST - will be what is reported on these reports...
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Gillian

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Thank you Linda.  So in a nutshell the cost price being wrong doesn't matter to anything important.
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Linda Putland, Accredited Partner

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correct.. :)  but the Average Price being wrong does have a material impact - the Average price is visible when you double click an item - but its in the grey area that you cannot edit.  However this is the price that will be used in sale transactions for adjusting stock on hand & cogs balances.
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Gillian

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thanks so much Linda