Improve display of Cost of Goods Sold for Production Orders

1- Hello there, I have created some inventory items to act as raw materials for production and then I created an inventory item to act as finished good

2- Then I purchased Raw material inventory items using a purchase invoice

3- Then I created a production order using these raw materials to produce the final product

4- After I created the production order the finished good was correctly created in terms of quantity and cost, and the raw materials were correctly used (depleted in terms of quantity and value) for production

5 & 6- the problem is that my profit and loss statement still show a balance in an account called ‘purchases’ under cost of sales rendering my income statement misstated (no figure should show in the income statement since I only manufactured the product, and I did not sell it yet)

Please help
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According to accrual accounting whenever you issue an Invoice it will record it to Profit and Loss and you must clear it once you received the Payment from the customers. That is accounting 101. So not sure what you try to report.

The invoice is purchase invoice, not sales invoice! (you sir did not even read well)
and you completely missed my point (the production order created inventory and also impacted profit and loss!!! which doesn’t make any sense)

Same principle applies it will show in P&L.

Whenever you issue a Purchase or Sales Invoice according to accrual accounting this is immediately recognized in the Profit and Poss account. See for basics about this:

Please get my point, this whole issue involves a production order that impacted both Balance sheet and income statement (the production order resulted in inventory and impacted profit and loss which i don’t understand, shouldn’t it decrease raw materials inventory and increase finished goods inventory or the item being produced?) please read my original question in its entirety

I got your point, you somehow ignore mine. I leave it there as others maybe much more helpful.

waiting for someone to aid me here as you said, but let me put this here meanwhile: the system is currently affecting both inventory in the balance sheet and Purchases in the profit and loss for a purchase/production transaction, which cannot happen under any system (periodic or perpetual)

@lubos
@Ealfardan

anybody, please ?

What edition (Cloud, Desktop, Server) and version of Manager are you using?

You should show the EDIT screens of the transactions not the view screens

Also show the edit screens fir the inventory items

This is not a bug @Amir, this is what happens when you try breaking down the periodic inventory calculation COGS = Opening + Purchases - Closing by item when there are Production Orders.

What happened is this:

Movement Raw materials ledger FG/WIP ledger Total
Available Inventory
(Opening balance + Purchases)
344,570 344,570
(−) Finished Goods
(After Production Order transformed Raw Materials to FG/WIP)
-36,423 -308,147 -344,570

COGS (Inventory consumption for individual items)

308,147

-308,147


I believe this should make more sense if it's labeled "Consumption of Inventory" instead of COGS, but this is the format that we have to live with for now.

Another option to make this more plateable for users is to introduce two more line items to the COGS equation so that it becomes:

Movement Raw materials ledger FG/WIP ledger Total
Available Inventory
(Opening balance + Purchases)
344,570 344,570
(+) Produced 308,147 308,147
(−) Consumed in production -308,147 -308,147
(−) Finished Goods
(After Production Order transformed Raw Materials to FG/WIP)
-36,423 -308,147 -344,570

Cost of Goods Sold




Though I don't find this breakdown to be problematic myself, however I can understand why many may find this result nonsensical, especially when you have to explain this to management who are not accountants. Therefore, I will place this in ideas.
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Since we are using the periodic inventory system, as long as the calculation
Opening Balance + Purchases - Closing Balance
is correct, I have no issues with it.

However, I believe we need to agree on how the detailed COGS report should be presented. Ideally, the report should clearly separate and present details for Purchases, Production Orders, Inventory Movements, and Inventory Write-Offs.

Maybe someone can give an idea, how should COGS be presented in Summary View and PnL report.

yes, now every outflow of inventory (production/sales/writeoff) goes to the COGS account. Even the use of inventory as a raw material, it also go to the COGS because that formula (closing balance as e factor).

I think this need to be reconsider also.

Cloud version

@Ealfardan you know what is the current situation in my books after the production order? I have inventory in the balance sheet (An Asset) and I have a negative figure (revenue) in my expenses! a revenue that I did not earn because the inventory is there and I did not sell it yet.

Well i would suggest keep same expense account for both raw material for Sesemo oil and finished product.

1 Like

hello everyone
right now i need to now who suggested this idea to @lubos? because it’s wrong principle and wrong calculation, because i see in replies some users defend about what happened and Mr @Amir show the problem that happened to all of us , who defend the what appear on this PnL not accountant and didn’t know any thing about accounting principle

1 Like

just the cost of what of sold from inventory sold qty * unit cost in the same day of sold unit

also if we write-off inventory write-off*unit cost in the same day of write-off

this is inventory expenses account’s in PnL

@shahabb Wow, I did what you Sayed and it seems to have solved the problem (at the beginning I did not assign an expenses account to the raw materials since I thought its irrelevant because they will not be sold)
You did what the big whales @lubos @Ealfardan couldn’t. he he he.
but please would you explain the logic behind this solution so everybody can benefit.

but it’s not a solution because we need to know the COGS for raw material if we sell some of our raw material also
So you mean the function of separated expense account’s are fake