Inventory Items under Assets in the balance sheet

1

Hello All,

I am having one issue with the discrepancy between p&l and the balance sheet.
It is coming from the fact that I have imported (and paid for) some foods. They have been purchased in another currency. On top, some local charges (VAT, Tax, transport etc.) were imposed after the delivery.
It all looks good from the booking perspective, as I have separate sub-accounts for all the cost items. However, since there were quite significant orders arriving recently, the P&L is showing a loss at the end of the year.
I know that I could allocate them to the Inventory field under assets in the balance sheet. I can easily move the “purchase invoice” entries to the “inventory” account. They are still the netto values, so I also tried inserting a separate entry in the Inventory field corresponding to cost attached to every shipment. I would then process an incoming payment of the amount updated under Inventory to “purchase cost” account - to balance the pre-paid charges. In this case however, I am also getting a separate entry under “Retained Earnings” / Equity.
Is there any way of inserting bought goods with full costs attached on the balance sheet part, so we could move them as assets to the next year, without influencing the P&L part?

Thank you in advance,
Gilbert

2

First, I assume you are referring to the importing of goods, not foods. I will answer based on that assumption.

It sounds like you may be misusing several aspects of Manager.

It is not clear what “them” refers to. Do you mean the goods or the local charges? And what do you mean by the "inventory field? The value of the Inventory on hand account is calculated automatically based on purchases and sales, not by your own allocation to any field.

I suggest you first familiarize yourself with general inventory management procedures in Manager by reading the three-part Guide beginning here: https://www.manager.io/guides/11111.

Also read about freight-in costs in this Guide: https://www.manager.io/guides/9610.

If you still have questions after all that, come back to the forum.

3

Yes, via the Freight-in process, but unfortunately the Guide is misleading and is in fact, factually wrong. when it states “Both the original supplier and the separate freight-in supplier are denominated in the same currency.”

Below is a worked example where the goods supplier and the freight-in supplier are denominated in DIFFERENT currencies. The mentioned “clearing account” is a Balance Sheet account.

Example A - The Invoices
1 - Goods purchase invoice from supplier entered as their currency - say Euros
2 - Freight purchase invoice from supplier entered as their currency - say USD
3 - Landing Charges purchase invoice from supplier entered as their currency - say AUD

So you have 3 purchase invoices entered in 3 currencies
Invoice 2 gets posted to the clearing account with a base currency debit of X value
Invoice 3 gets posted to the clearing account with a base currency debit of Y value

Values X + Y = Z. This base currency Z value gets manually converted into Euros at the same exchange rate as used for Invoice 1 and then gets added via the additional two lines. This euro converted value of Z gets posted back to the clearing account as a base currency credit Z value - so the clearing account is ALWAYS zeroed out.

Further noting that the Guide’s “same currency” doesn’t necessarily need to imply “base currency”.

Example B - The Invoices
1 - Goods purchase invoice from supplier entered as their currency - say Euros
2 - Freight purchase invoice from supplier entered as their currency - say Euros

Base currency USD. Therefore even though both invoices have been “denominated in the same currency” IF they haven’t been processed using the exact same exchange rate, then the clearing account’s Z value must be cleared by using Invoice’s 1 exchange rate.

Generally, when using the clearing account for any freight-in, even base currency, the clearing account’s Z value (for that goods invoice) MUST ALWAYS BE USED, unless you have particular complicated exchange rate situations, then working from the invoices maybe required…

Especially noting the fact that in the above examples - the automatic allocation process - has been used

For a fuller discussion on this you can read the topic:

4

Thank you very much Brucanna!
Following the instructions, I have manage to move the required 'purchase invoice" transactions to Inventory in Hand under Assets. If I want to have all costs reflected properly, I will need to follow your instructions (and I will do that!) It’s easy to amend the already existing invoices (let’s say transport) to freight in. I would only need to adjust the currency factor. What is keeping me from moving all the other costs is the fact that when I adjust the pre-paid VAT on P&L, it reduces the value under Liabilities as well. We are obliged to pay the VAT on quarterly basis. I ended up with a mixed feeling yesterday, as I would either have the numbers, or the VAT correct.
On the other hand - moving some purchase invoices was relatively easy. When I try to add the total purchase cost as another transaction under Assets (to balance the already paid costs) it has a negative impact on the P&L part when processing the payment. It would update also under the retained earnings in the balance sheet. I am wondering if there is a way of adding an X amount to assets (witha proper description that it is there to balance the already covered costs) without impacting the P&L and the retained earnings element?

5

Please explain this comment in further detail. VAT should not be appearing on the P&L statement. VAT is either a liability you owe to the tax authority on behalf of your customers or a contra liability the authority owes to you because of what you paid your suppliers. When used properly, a VAT tax code posts to the designated tax liability account, not any P&L account.

If you are referring to adding to the value of Inventory on hand for a specific inventory item, yes there is. On a purchase invoice or payment form, select the inventory item to which the additional cost applies, but leave the Qty field blank. Enter the additional cost in the Unit price field. This is explained in the manual allocation section near the beginning of the Guide already linked above: https://www.manager.io/guides/9610.

6

Hello Tut

the way it works in my case is that we need to pay VAT (together with taxes) for the incoming transports. We do have a virtual account and we do get charged directly in e-banking. We would get the amount, together with an invoice. We book it as outgoing payments and it appears under Tax payable in liabilities (so in balance sheet). Your comment about VAT is valid. In my case, the VAT value for Q4 is negative and it will be returned in Q1 2021, meaning that it is covered in net assets in the balance sheet report.
Regarding the Inventory on hand (yes, I was referring to it) - so far I have added an empty “COST” item from a “COST” supplier created with the default currency. I have made a calculation and summed the total cost. In fact, I have added 2 items of the same price of COST to inventory on hand. I have then sold one of the COST item for the price of two. It gave me the expected result both in the P&L and the balance sheet, Still need to check it in details :slight_smile: I will also check your link and hints. Thank you very much for your help!

7

I have one more question if I may…
it is relatively easy to move the purchase invoice items to inventory on hand. You just need to create the inventory item and assign the purchased product to it. The challenge comes with the freight in process. The freight in can be added to the purchase invoice. However, in my case, the product costs consists of the purchase invoice, plus separate invoices (transport, customs clearance, tax etc.) All the additional cost elements are updated as outgoing payments in line with the bank transactions. All invoices are issued by different suppliers and paid in different dates.
In other words - I have 20 purchased products (cars). These cars are imported with all costs paid in 2020. Taking one car as an example in theory.

  1. Car import date 1st Dec 2020. Purchase invoice 20 000 EUR (netto)
  2. Car transport invoice 10 Dec 2020. Cost 2000 USD (netto) registered as an outgoing payment
  3. Tax invoice from the border 12 Dec 2020 1000 EUR registered as an outgoing payment
  4. VAT invoice from the border 12 Des 2020 3000 registered as an outgoing payment

We have all transactions in 2020. It is quite easy to create an inventory item and to move the purchase invoice to the inventory (and to remove it from the P&L). All other items from the P&L remain there negatively influencing the net result.
When I assign the transport payment to the inventory item, it is adding there as a second item.
I could in theory add a field in the purchase invoice and add all costs attached to the product there. It would reflect all points (1,2,3,4) there. However, it would not help in reducing the already paid and updated transactions on the P&L side. On top, the invoice dates for points 2/3/4 are different from the purchase invoice date (1) causing discrepancies in future reconciliations (I guess).

8

perhaps I could book all product purchase cost under the same inventory item name? I would then have 4 inventory items:
20000 EUR + 2000 USD (converted) to EUR + 1000 EUR + 3000 EUR? When the car is sold in 2020, I would sell all of them? The issue here is that these items would be visible on the sales invoice, while I am still selling one car. I am not able to sell only one item and delete three of them, as the cost has to be properly reflected for 2020 and all inventory moved to 2021.

9

and if I do it all via the freight in process under the purchase invoice, I would still have the cost transactions on the P&L side…

10

You did not follow the Guide carefully.

No. As I wrote, read the Guide.

11

@Tut @Brucanna
thank you so much for your help! I’ve spent the whole day splitting the invoices, adding the inventory items and assigning the relevant costs (with the number field left empty). It looks fantastic!
Enjoy your weekend!
Gilbert

12

They shouldn’t as all your other items should be posted to a BS Clearing Account, not the P&L
Once items 2, 3 & 4 payments have been entered, then they are transferred from the BS Clearing Account to the Inventory Item via the process detailed above but redrafted below to suit your model (I think).

Example A - The Invoices
1 - Car Import entered as a Purchase Invoice as Euros
2 - Car Transport entered as a Payment per bank transaction
3 - Tax Invoice entered as a Payment per bank transaction
4 - VAT Invoice entered as a Payment per bank transaction

So you have 4 Items
Item 1 gets posted to the Inventory Item
Item 2 gets posted to the BS clearing account as a debit of W value
Item 3 gets posted to the BS clearing account as a debit of X value
Item 4 gets posted to the BS clearing account as a debit of Y value

Values W + X + Y = Z. This Z value gets manually converted into Euros at the same exchange rate as used for Item 1 and then gets added to Item 1 via the additional two lines. This euro converted value of Z gets posted back to the clearing account as a credit value - so the clearing account is ALWAYS zeroed out.

No, please read the above.

I am hoping your “whole day” ended up with the results illustrated above but your comment “(with the number field left empty)” is making me nervous, if by number, you mean invoice value. There is no need to leave it empty anywhere.

13

I believe @gilbert is referring to the Qty field being left blank when adding freight-in costs to inventory items.

14

indeed. the quantity field.