This just happened to me.
Customer wanted a laptop with SSD Hard Disk.
But the laptop in the inventory didn’t have it. Only had normal HDD.
I’m now removing it and will install SSD and there will be one extra HDD.
How to enter this correctly?
This just happened to me.
You cannot yet enter production orders with multiple finished goods items. So you will need to make journal entry to write on the leftover drive after using a production order to record manufacture of the modified computer.
If it is not an inconvenience can you please give me some details. I’m just entering my proprietor business transactions into manager. I don’t know much about accounting and journal entries. Thanks.
Read the Guide about writing on inventory.
Or @Prasanna_Premasinghe you could note the change on the invoice to be transparent.
Note negative inventory for removed item
@Tut what will happen if we use journal entries as production orders only qtys ?
You would corrupt the balance of the Inventory on hand account, because the adjusted items have value. See the discussion here: https://www.manager.io/guides/20615. All the items, both input and output, have value. A production order determines the output item’s value from the input items’ value plus non-inventory costs. This is why there is not yet any ability for multi-output production orders: there is no straightforward way to apportion input items’ costs to output items.
Firstly, you WILL NOT corrupt the balance of the Inventory on hand account.
What will happen is that the Journal will cause Average Costs to change.
Note how the total inventory value (418.00) hasn’t changed but the Average Cost for each item has, however the Journal created production item (item 4) has no Average Cost and that may have been the intended outcome, so no corruption of the Inventory on hand account balance has occurred.
@Brucanna, you have illustrated three input items being used to produce one output item (Item 4). And that output item has no average cost, which cannot be true if all input items had value (see my final paragraph below). Further, the balances of the individual input items have not changed, despite there being fewer of them. So their average costs went up for no valid reason. That is, there were no other purchases at higher costs. That is what I meant by corrupting the balance of the Inventory on hand account. While the total has remained constant, its constituents are now all wrong, every one of them.
This topic is about producing multiple output items. Since you already have this example set up, try rerunning it for multiple output items. You will then incorrectly have multiple output items with zero value and an even worse distortion of average cost for input items.
Can you provide an example of when that would be an intended accounting outcome? Item 4 has absorbed the value of its input inventory items. How could it ever have no value? That would require offsetting non-inventory income rather than costs. In other words, the act of production would have to create labor, generate consumable supplies, reduce utility expenses, add life to machinery, or otherwise increase availability of resources.
Yes it can be if that was the intended management outcome.
In your view, however that could have been the accepted management outcome.
Only in your view. An informed management maybe perfectly contented with that outcome.
Well its not, its about one item, the laptop, and substituting one component (HDD) for another component (SSD). So, you started with two inventory items Laptop and SSD and you ended up with two inventory items Laptop and HDD - so you have a swapping of items, not multiple outputs, in that, you don’t end up with more items than you started with.
Please don’t distort my comment with your misrepresentation of what I stated. If you re-read your selected quote it clearly states “intended outcome” it does not state as you incorrectly repeated it as “intended accounting outcome”. Accounting per se has nothing to do with it.
The three items are spoiled so that they can’t be sold as original items, but management has decided to package them up and put them into a bargain bin. The “intended outcome” was to sell them without disposing them in the garbage. The packages (item 4) were in effect valueless.
Now management could have elected to write them off, a once off expense, but decided in lieu to make a lower markup on the remaining items as and when they were sold. Over time the results are the same.
This is getting far to complicated, creating some form of accounting justification.
Management actions create the accounting, accounting doesn’t create the management actions. Power to the management, not the bean counters.
You wrote about an “intended outcome” while giving an example of entries to an accounting system, and while addressing a question on how to record accounting transactions. Referring to an “intended accounting outcome” is hardly distortion. Moreover, I did not present that phrase as a quote of your post. And accounting has everything to do with it.
Your example of converting spoiled inventory items into a worthless bargain bin item is a very limited situation where your technique accomplishes the desired outcome. It is equivalent to writing off spoilage via the bargain bin (ultimately resulting in revenue rather than expense). Thank you for providing it. But I was answering @Genti_Ge’s question about the suitability of journal entries as substitutes for production orders when there are multiple output items, not as a method for salvaging something from spoiled inventory. Further, the approach is not workable for @Prasanna_Premasinghe’s original situation with the substituted computer drive. So I don’t know why you brought it up, as it does not address either of the questions raised in this thread.
Thanks @Brucanna for taking time and testing it, your example made possible to see clearly the result of such action.
by the way this was hilarious, never heard before the “bean counter”
Thanks @Tut for clarifying the account impact and possible problems that may rise from such an action.
both of you with your individual points of view gave us a perfectly clear understanding of the
consequences of using journal entry in this way and what can be archived if used this way.
hoping to see production order enchantments soon as a lot of ideas about below problem were presented in this forum
With this I agree completely. That idea was written by @Brucanna as one of the very first, possibly the very first, when the ideas category was created. I gave it my very first vote when votes were instituted, and I believe it has more votes than any other idea.
Because I was answering YOUR specific questions YOU directed at me:
To have just ignored your questions would have been contemptuous.