This is an illustration to show how Sage One handles Cost of Sales. Remember that all inventory transactions and item valuation will take place in Humble Till.
There are two methods of calculating your cost of sales:
- The Periodic method (Sage One refers to this as the Purchases method)
- The Perpetual method (Sage One refers to this as the Sales method)
- The Perpetual/Sales method calculates your cost of sales by including only the cost of items sold to your customers through your invoices.
- Humble Till uses the sales (Perpetual inventory) method to calculate Cost of Sales.
- You purchased 10 widgets at R 100 each giving a total of R 1,000.
- You sold 4 of them.
The Periodic/Purchases method would reflect your cost of sales as R 1,000.
The Perpetual/Sales method would reflect your cost of sales as R 400 (4 x R 100).
So the Periodic method would show R 600 less profit than the Perpetual method.
To match the two, you would add back your closing stock which in this example would be R 600 (6 units of R 100 each i.e. you bought 10 and sold 4 leaving 6 units on hand). The situation is further complicated when you bring your opening stock to account.
Your stock (inventory) on hand at the close of a reporting period is indeed considered an asset.
Recording Inventory on Hand:
An important point to remember is that once the initial Sync has imported your items, suppliers and customers from Sage One Accounting to Humble Till, all inventory transactions will need to be handled in humble Till. All adjustments and reports will be taken from humble Till and these adjustments will be recorded in your Sage One Account to ensure that all the Item data is correct.
Please Note: If you are linking an existing Sage One account to a new humble Till account your on hand quantity for items will not be imported to your humble Till only the item name, cost and selling price – Please contact our support team should you have any queries.
In this example, we have assumed your Balance Sheet is run at 28 February (your financial year end):
For clarity, the inventory values above are grouped under the heading Inventory on Hand, using a Reporting Group in Sage One.
How to reflect your Inventory closing balance on the Balance Sheet
- Step 1 – Set up the correct accounts in Sage One
- Step 2 – Calculate your Inventory Value movements (difference between your opening and closing inventory)
- Step 3 – Process your Inventory Journal to reflect the above mentioned movement
Step 1 – Create the following Inventory Accounts:
In order to process your journal entry you will need to set up some inventory accounts (if they don’t already exist).
Go to Accounts…List of Accounts…Add an Account and add the following accounts in Sage One. Note the financial categories illustrated below. These categories are used by Sage One to position the amounts in the right section of the Balance Sheet).
Inventory Movement – Asset
Inventory Movement – Cost of Sales
Cost of Sales
Step 2 – Calculate the Inventory Value:
Assume you began using Sage One at the beginning of the current year.
Please setup all inventory items on Humble Till. This will allow you to process all supplier invoices and stock adjustments in the humble Till. These will then be pushed into Sage One Accounting through the Sage Push and the progress can be monitored using the Sage One Dashboard under settings in Humble Till.
Sage One automatically puts this balance in a System Account called Inventory Opening Balance on the Balance sheet. In our example we will assume an opening balance total of R 10,000.
Now assume that at the end of the year, your total inventory on hand (closing stock) amounts to R 75,000.
You can get this total from your in Stock Report from Humble Till
Good practice says you should conduct a stock take to check your item quantities on hand which will be conducted in Humble Till, as reflected on the In Stock Report. You should also check that the cost value for each stock item is reasonable (in case mistakes have been made).
In our example, opening inventory totalled R 10,000 and closing inventory totalled R 75,000 reflecting an Inventory Movement of R 65,000. This value is the difference between the Inventory Opening Balance and the Inventory Value (the Inventory Closing Balance). This is the amount that you will use to process your journal entry.
Inventory Opening Balance: This amount will appear on your financial statements by default.
Inventory Value: Your actual inventory on hand value.
Inventory Movement: This amount needs to be recorded.
Step 3 – Process the Inventory Journal Entry:
Consult your accountant before processing these journal entries if you are unsure.
The journal entry will be processed to record the Inventory Movement to create the “inventory on hand balance” as at 28 February as follows:
On 28 February debit Inventory Movement – Asset with an amount of R 65,000 by affecting the Inventory Movement – Cost of Sales account.
To process the journal go to Accountant’s Area…Process Journal Entries.
If when you are processing this journal and your closing inventory value is less than your opening inventory value, reverse the debits and credits on the journal entry.
The screen shot below shows this journal entry for the example above:
Please don't hesitate to contact our support team with any questions you might have on firstname.lastname@example.org