Confused with Inventory Costs after Productions

I had previously made production orders to convert purchased inventory into finished goods for sale, and included non inventory expenses under “production expenses” (and one charge under labour cost) while creating the order. The COGS chart of accounts showed a lot of Credit figures, and also the purchase figures were not being shown. (The figure relating to Purchase of Raw Materials relate to PRE-GST purchases and are entered in Manager without influencing Inventory).


so i edited all the production orders and removed the non inventory expenses, and made cash payments for the production expenses incurred on those dates.


Still, the COGS Cost of Goods Sold Amount doesn’t match to the old figures.
What is going on here? Can you explain me what the correct procedure should be?

also a point to note is that the Non Inventory expenses stay stored within the data file even after unchecking the option.
If i edit the production order again, checking the Non inventory expenses box brings up the old entry without having to do anything from the user’s side.

maybe this is what is causing the problem.

NB: there exists a debit of 700 in the Production Expenses which was unchanged.

You seem to be misunderstanding your chart of accounts.

Based on the way you have accounts grouped, this is correct. When you add non-inventory costs to production orders, they appear as credits in designated expense accounts to offset their addition to the asset account Inventory on hand. There must be some other transaction recording their addition to the expense account, such as by a payslip. In other words, you incur a production expense, such as by paying a worker. So the Production expenses account is debited. That transaction is independent of a production order. The production order records consumption of input inventory items and transfers non-inventory costs to Inventory on hand by crediting the Production expenses account.

That way, when a produced inventory item is sold, Inventory - cost includes both the cost of purchasing the raw materials that went into it and the non-inventory expenses required for manufacturing it.

Yes they were. The cost of materials going into the production order were recorded when they were purchased under Inventory on hand. The production order transfers those costs from the raw materials to the finished item.

The use of your Purchase of Raw Materials account is questionable. Your explanation was somewhat vague. Irrespective of GST registration, the costs of purchased inventory items went into Inventory on hand. But since the figure is constant, it does not affect the difference between group totals you are seeing.

You probably should not expect it to, for two reasons:

  1. Inventory - cost balance is calculated from average cost of all inventory items sold during the reporting period. By removing non-inventory costs from some production orders, you changed their average cost at every point in time following the dates of the production orders you edited. So the cost of goods sold on every receipt or sales invoice dated after the date(s) of edited production order(s) changed.

  2. I also note that your balance for Production expenses after editing does not equal the sum of the non-inventory costs you removed from the production orders. You apparently made other changes you did not describe.

1 Like

well, the old figure can match the new figure - if i make a cash payment of 13925 towards Production Expenses and 100 towards labour wages (these were the amounts in credit) - which means my old accounting was wrong, with the production costs never being paid for through cash.

also, there were debits of 700 already existing in the Production Expense which had been paid by cash.

Now you have given additional information you did not initially include. That is why I said things probably shouldn’t match. As it turns out, they did, but had there been other transactions, they could well have been different. Glad you have things figured out.