I would like to be able to use inventory write-offs to allocate inventory to personal use, as per this discussion (for example, by allocating it to the Funds contributed or Drawings subaccounts of my capital account). Until now I have been using journal entries for this, but it necessitates looking up the costs of the goods and remembering to add the VAT for the journal entry, which adds work and room for error.
@Tutsuggests using a clearing account, which would allow for automatic calculation of the costs but would still involve several more steps and an extra account. Being able to select the capital subaccount from the Allocation drop-down menu would simplify the process and reduce the room for error.
Could this be considered for the Ideas category, please?
Those are possible uses. But inventory write-offs can be used for other non-revenue disposition, too. For example, inventory given away for marketing samples or used for internal operations.
That would depend on local tax law and is definitely not a universal principle.
@GrahamvdR, the solution to your problem is not in write-offs, as this solves this minor problem by introducing much bigger problems.
You should create a customer account for your owners/employees.
Then you have two options here:
A. Create a non-inventory item (owners discount mapped to an equity account; or employees discount mapped to an expense account) and apply it to each invoice. (I donât prefer this until you can map non-inventory items to control accounts) but it works if you donât want to know who took how much.
B. Invoice the owner or the employee in full, then create a zero valued receipts to offset their receivable balance to their employee / capital account. (Which my preferred method in this current setup)
Write-offs are designed for shrinkage, obsolescence and theft â basically things you cannot control, and not for owners (even worse, employees) âtakingâ things and having the accountant âdeal with itâ using write-off, the inventory is there to be âsoldâ even if itâs at a 100% discount.
I am completely opposed to this idea because this will systematically enforce bad practices and lack of control over inventories (which is already near impossible to perfect) and I donât want my users to be able to work their way around proper procedures.
Also, you should not use receivable write-offs because it will get you in trouble with tax authorities.
@Ealfardan, your objection is rooted in personal preference rather than any accounting principle. @GrahamvdRâs suggestion merely allows drawings to be taken in kind at their current asset value. That is a perfectly acceptable accounting transaction.
This would be pointless. The entire purpose of the suggestion is to manage inventory. You cannot do that with non-inventory items.
Furthermore, there was no suggestion to apply this to employees. So please do not bring them into the discussion.
A zero-value receipt would not offset a balance in Accounts receivable (nor in Employee clearing account). You would need to include a negative line item posted to the payerâs subaccount. The end result of that would be the same as the proposed direct write-off.
That is very limited view of inventory write-offs, which can be used for any non-revenue reduction of stock. You also overlook the fact that most Manager users are not accountants, nor are they asking an accountant to âdeal with it.â They are entering transactions for their own businesses. And it completely legitimate to record removal of inventory for private usage as a drawing.
The suggestion is not to be writing off receivables, but to write off inventory that will not be sold. You are the one who introduced the idea of turning such transactions into receivables. Whether there are tax issues depends on local law. It is true that in some jurisdictions such a removal would be considered a taxable event, but not in all jurisdictions. In that case, the write-off form includes the possibility of applying a tax code. If it is used correctly, no one is going to get in trouble with tax authorities.
Your preference for how you control your usersâ behavior is not a valid reason to preclude acceptable accounting transactions. There is a valid use case for @GrahamvdRâs suggestion. If it is implemented and you donât want to use it, donât.
No matter how you justify it @tut, write-off will never equate to a stock issue.
Write-off is a very specific accounting term which is used to record a âloss or impairment of value.â
Decrease in inventory because of issue whether itâs a sales, a manufacture, or whatever transaction it may be is never a write-off.
The terminology is very important here since it is used to differentiate between two completely different asset remeasurement methods that differ in the way they are controlled.
One of them: âissueâ, is a proactive control whereby you process the decrease in stock in a controlled manner.
The other: âwrite-offâ, is a reactive control that deals with the information mismatch after the error unknowingly took place.
I know manager has no concept of âissueâ or âreceiptâ of stock, and I understand itâs a design choice to reduce the processing time by integrating those into the invoices abd receipts, which is fine by me. But this write-off deal is a huge mix-up of two completely separate processes, which isnât a design choice, itâs just wrong.
@Ealfardan, now you are down to quibbling over whose definition of write-off or issue you want to use. In its broadest definition, a write-off is a reduction of an asset associated with its inability to produce future income. You seem to prefer a definition that only includes events beyond your control, such as spoilage, theft, or obsolescence. I would accept all those.
I would also contend that removal of inventory from stock for private use by an owner also reduces the asset, because you obviously cannot sell it for future income. Likewise, conversion of inventory to marketing samples reduces the Inventory on hand asset. So I do not see any significant difference. There is no financial difference between writing off an item and selling it at 100% discount (your example).
I am also not alone. As one example, Quickbooks specifically treats conversion to marketing samples as an inventory write-off.
@VACUUMDOG, both your examples use a journal entry to credit the asset account holding inventory. In Manager, that is Inventory on hand. An inventory write-off in Manager credits this asset account and debits whichever account you allocate the transaction to. Your first example debits the drawings account. The second debits a promotional expense account. Those are exactly the same results accomplished with an inventory write-off in Manager.
In the end, every accounting transaction can be reduced to an equivalent journal entry, so that is how instructional books and web sites often present them. Manager uses specialized adaptations of journal entries to tailor entries more easily to the situation and reduce the need for inexperienced users to determine on their own what accounts to debit and credit.
I donât know whether you intended to or not, but your post reinforces my position.
In the Quickbooks case, the accounting transaction being accomplished is an inventory write-off. Advertising and Promotion is merely the expense account selected for allocation of the write-off in the Quickbooks documentation example. This is precisely how you would do the same thing in Manager.
Thanks @Tut for making a case for this idea more eloquently than I could have.
Agreed. Inventory write-offs allow the user to apply a tax code to the transaction, which is what I would do if I was allocating it to an equity account for personal use.
Earlier in the year @lubos wrote in another topic:
(Emphasis is mine.)
I am not an accountant, so perhaps for me the term âinventory write-offâ does not carry such a specific meaning as it does for some others here. What I would like to achieve is to be able to allocate inventory for personal use to an equity account, and have Manager do all the cost calculations itself. I donât really mind if this is called âinventory write-offâ or something else altogether. Currently all the methods that Iâve tried or have been suggested either involve manual look-up and input of costs or extra clearing accounts and more steps. The Inventory write-off transaction type seems to accomplish what I want perfectly, except that I canât select the equity account for the allocation. As far as I can tell, all reporting obligations to the tax authority will be met, provided I select the appropriate tax code for the transaction (which would still be the case if I was using a journal entry or any other method).
Perhaps one solution would be to change Inventory write-offs to Inventory allocations or something similar, to avoid upsetting those who have a very specific interpretation of the term that is not met by some of these requested uses. Then users are free to create their own expense accounts for the allocation, and could call those whatever they want, such as âInventory write-offâ, âInventory damage write-offâ, âTheft write-offâ, etc.
@Tut what are you saying? Are you suggesting that Manager should copy Quickbooks from now on? That makes no sense because I can spend the whole day telling you why QuickBooks are wrong in everything they do.
Quickbooks is an inferior product that you shouldnât use as a benchmark for manager, and instead of looking down, you should look up or at least ahead when you benchmark.
Also not being able to issue stock at cost is a valid problem, itâs solution is never by reinventing the wheel (QuickBooks style) but rather by either:
Use multiple prices lists like every decent accounting system out there (doesnât include QuickBooks), or even better
Use a predetermined discount rate for employees and owner regardless of actual cost (Like every properly managed business would do)
Also applying your logic, we can also extend write-offs for sold inventory item since selling reduces the asset. Even better, issuing materials for production reduces my raw materials so why not just write them off instead of going out of our way to create an MRN and then issue stock and then create an MO that will convert my raw materials to finished products.
Accounting jargon is not like your everyday speech, we use different terms to distinguish between different things in nature or in treatment.
Looks like Iâm just a bit slow.
The books would balance.
To simulate being able to select a capital account in inventory write offs a clearing equity account can be used
When Owner 1 collects their 2 buns, using inventory write off
As we can not currently select a capital account in the above transaction I used a temporary clearing account above, moving the funds out of there immediately via
Thanks for this worked example, @Patch. As I mentioned above, Iâm not at all set on the terminology. It just seems like the most efficient mechanism to achieve what I want, and if the terms change thatâs fine by me.
I learned something new from your example receipt:
It hadnât occurred to me to include the entry for the capital account in the receipt like this. However, it doesnât get around the issue of having to manually find and input the cost price. This may seem trivial in simple test cases like this, but in my business nearly all my inventory is imported, so I have huge currency fluctuations and multiple freight-in costs from different suppliers in different currencies that contribute to the costs of goods. I use an external spreadsheet to calculate all my sales prices, as inflation makes Managerâs reported costs of goods useless as a basis for doing this. But what it also means is that it works to my advantage to be able to purchase goods for personal use at Managerâs calculated cost price, rather than the market retail price or even the retail price less a fixed discount. I know that I can just check the Average cost for the item in the Inventory Items tab, but that still involves several more steps and gets quite onerous if there are lots of items. Plus I need to remember to multiply the cost by 100% plus the tax percentage when I enter it [Edit: because I had been using journal entries, which are always tax inclusive. Using your method or some of the others suggested would mean I wouldnât have to manually add the tax]. Much simpler would be to just use an Inventory write-off (or the same kind of transaction by another name), select the inventory items and their tax codes, select the equity account for the allocation, and let Manager take care of the rest.
No. Donât put words in my mouth. I used the example found the fastest in an internet search. It happened to be for one of the most widely used accounting programs in the world.
I wasnât benchmarking.
Neither example is the same, and you know it. Your perspective about inventory write-offs was over a narrow viewpoint on terminology. These two examples are completely different types of transactions involving many more parameters. You cannot assert that my wider definition of write-offs includes such things.
This has been in the ideas category for three years already: Inventory Write-off tab modifications. If you visit that link, you will see it was proposed by one forum moderator and supported by two others.
The fact that Manager has a separate tab for inventory write-offs but requires journal entries for write-ons (upwards adjustments) has never made a lot of sense. It is just an artifact of how the program developed. But if that tab were expanded in scope, it would be easy to include different types of inventory adjustments with terminology palatable even to @Ealfardan.
