want to enter products produced on farm

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Hi all, I produce eucalyptus oil and I want to add it to my inventory. Currently I am just creating a supplier and naming it after the paddock the oil was produced in. However, because I don't actually pay anything for it, it doesn't show me how much oil I have produced in any graphs or tables as there is no cost. I'm thinking there has to be an easier way to enter something that is produced as opposed to bought and resold. As far as selling it on that's the easy part and creating products from it is all worked out. Just the simply task of entering its sudden existence has me baffled!!
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Chris Cumming

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Posted 4 years ago

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Hello Chris

I am assuming that your inventory is set up as an inventory part, and have associated Sale, COGS and Asset items set.

How I have dealt with it is:

Created a bill in the item tab select your item, enter the quantity produced the cost associated with that item, ensure that no tax codes are used.
This will increase you inventory item in the balance sheet.
Then click back on the expenses tab and allocate a negative amount of the total inventory made, to a COGS account Closing Stock (no tax code).

The bill then came back to nil so nothing to pay, but creates the stock to be sold with a cost price.

Hope that helps

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Angela Bichler, Accredited Partner

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Hi Chris,

Yes this is a difficult one. If you look it from an accounting perspective, agricultural falls under the guidance of AASB 112 and 141. Harvests from biological assets are measured on initial recognition at their fair value less costs to sell at the point of harvest. One way would be to create a Work in Progress account for manufacturing. In this account you would accumulate all costs of manufacturing the oil (and you could have a WIP account for each paddock). The cost of getting the leaves manufactured to oil would be for example, water, fertilizers, pruning costs, pesticides and then you would create your inventory items when you harvest. Upon harvest, you will create your inventory via a bill of materials/inventory builds into 1ltr, 2ltr bottles etc. Then you will need to revalue your inventory so that the value of the oil is at fair value (ie the wholesale market cost price of eucalyptus oil). 

There are few ways you could achieve reasonable inventory management. It is, however, very technical, specially if you would like to allocate labour and other direct/indirect manufacturing costs into the equation.  It is essentially cost accounting. I suggest you have a chat to your accountant about how you can achieve this in your software. If your accountant is not able to help, feel free to contact me.