I procure an item worth 1000 from a supplier, tax for this is 100 and I incur another 200 for transportation of this item. So when it reaches my rack, I would have spent 1300 and this is my landed cost. When the inventory is debited with this item, shouldn’t it be 1300?
If I make a sale of this item for 1700, then the GP would be 400 in this case, as the tax and transportation have added cost to my inventory item here already.
However, I was trying to get this done thru Manager, but was not successful. I generated the purchase invoice to supplier X and debited inventory on hand with the code. Here the purchase invoice amounts to 1100, including the tax charged by supplier X. Now I have to record another 200 as transportation of this item to my place and this is done by Supplier Z. When I try to do this, I get the quantity affected as we have two different suppliers/service providers. Besides, the tax paid for this items to Supplier X is not reflecting on the inventory value. Though it is grouped under Tax category, I feel this is more of a cost than tax concern and it should be shown on inventory value.
My point is that, the inventory item should have the landed cost rather than the purchase price as the purchase tax paid and the transportation involved are costs to me. When I make a sale later, the Selling Price - Landed cost would be my GP.
Is there something that can be done by me to overcome this in the current version? Please share your views… and also advice, if this is already possible.
What I do is I set the purchase price in inventory and create a purchase order for the inventory item and create s second line for delivery fee.
On the inventory item sale price, in an example like this I would just put the sale price as stated above, so this would cover purchase price and delivery fee as well as tax.
On invoicing the client you could invoice them the inventory item and a nominal delivery fee amount.
Or you could make the purchase price in inventory for the transportation and the actual cost price of item which I think would suit you better. I am not sure why you are having problems as all you need to do is set the purchase price as 1300 and sales price as 1700 and then there is only one inventory transaction.
I prefer to split the actual cost price and cost of delivery as I may be able to find another supplier selling for the same price but a lower delivery fee.
I think the point I raised has been mis read. Yes, we can key in the purchase price in the item master and also the sales price, I agree. This will cover the extras when the item is invoiced. These are documentation part. The point of concern was not this, but on the inventory value and its accounting procedure.
Let me try to be clear again…
Consider we purchase an item with purchase tax and then depend on a third party to have it transported. How do we account the transportation cost? Presently it will be treated as expense and reflects on the current PL as they are payable to a different party. This means that we are not considering the landed cost for inventory value, but the purchase price for valuation of inventory.
In the above illustration, there is no way to take the transportation or any other extra costs that we incur to get the material to our warehouse to the inventory value of the item.
Logically, we may be advised to get the material at the least expenses, but it may not be applicable in all cases. When there is no stock with the supplier where our transportation cost is minimum, we may have to depend on the supplier where we need to spend more on transportation. Further, there could be variation in transportation cost when the fuel prices are increased/decreased by the Govt. from time to time.
If the above illustration is still confusing, can anyone please advice me how to account the transportation cost (from a 3rd party) we incur to build my inventory?
At the moment all you can do is record the delivery fee, the inventory purchase price and the sale price. The only thing that you can do is include the delivery fee in the purchase price on the inventory tab at time of purchase. There is no way to separate it.
I simply add the Courier / Freight / Transport cost to the customer’s invoice. It is nice and tidy and the buyer understands. If it is a container load of product / material moved into inventory, I generally work the transport cost into the landed cost like you have done. If in the next batch of product there is a variation in landed cost those items will have a suffix to the SKU number alerting the inventory manager to the price shift. This product even though identical will have a different selling price. Fact is selling price will fluctuate with economic conditions. I also apply first in first out with the inventory. Lastly you could position your profit to handle / buffer both the up and down swing of the changing landed costs.
I understand your problem better. I will have to leave it to the developer to think about how to handle identical stock that has a different landing cost. I buy to order so I don’t have this issue. I just include the delivery charge within the purchase price and sell straight on to the client. So its not been a problem for me, but I can see what you mean.
@dalacor, you might also think about using Disbursements if all your purchases are passed straight through to the customer. That way, you wouldn’t need to worry about inventory at all. Manager will handle markups or discounts automatically, as well. All my purchases of materials fall into this category, and I’ve been very pleased. I renamed the accounts to Billable Expenses so it makes more sense. I have suggested some renaming to @lubos in this thread: Renaming Disbursements tab.
Disbursements is not meant to be used for buying and selling inventory. It is meant to be used for expenses that are incurred during course of job that cannot be quoted beforehand. I quote first, then order and then invoice
Lubos said that for what I am doing, disbursements is not suitable. This applies to sub contracting and I definitely prefer using the inventory for my sales as I can track what I sell a lot of etc.
I appreciate that you like disbursements but you are not meant to use it for inventory purchases and sales even if you are buying and selling immediately.
I definitely agree that Disbursements is not meant for buying or selling inventory. And I apologize that it slipped my mind that we had exchanged thoughts on this subject previously. I can see that quotes might be easier if you can rely on pricing information already entered via inventory. My only point was that inventory isn’t necessarily essential for what other participants in this thread are doing. You can still include materials pricing in a quote to a customer based on a quote from a supplier without entering the item into your inventory system. In fact, that’s quite common for new or custom products being proposed to an end user. The inventory entry occurs only after you are awarded the job and start buying materials. If the purchase is a one-time thing, Disbursements might serve well.
One of the definitions I have always applied is that inventory consists of goods held for production or sale, with “held” being the operative term. Goods passed through on a job don’t qualify as inventory under that definition. They simply create a billable expense to be invoiced.
The important thing, I suppose, is that you follow a rational and consistent protocol.
@Tut think manufacturing orders sounds more like what the OP is doing personally. At least ways that is the impression I am getting. I have not used the manufacturing orders module as I don’t manufacture things - I may sometimes sell an inventory kit but thats another thing.
What exactly are you selling @anoopchintu ? If you are manufacturing something from different materials use the manufacturing orders. If you are selling a kit of one or more items from the inventory, then use inventory and inventory kits, if you are just plain buying and selling goods, then use inventory. If you are using materials on a job and using labour on a job that you have not quoted every item for, then disbursements would be useful.
OK, so if I understand this correctly, it’s about capitalizing delivery expense so it doesn’t show on P&L. It must be capitalized as Inventory on hand.
And the problem is that delivery of these items is by different company than the one selling the item.
So what you are asking is ability to purchase inventory items with ability to enter zero quantity. That way you can allocate delivery costs to the specific inventory item without actually increasing inventory count. Is that correct?
You can charge ‘other costs’ to inventory and increase the value. i.e. when the invoice comes in for freight or other ‘landed costs’ charge the expense lines to ‘Inventory on hand’, select the item and a quantity of zero. The added cost goes into the inventroy item without increasing the on-hand quantity. In this way the ‘average cost’ goes up and the higher value will be reflected in Cost of Goods sold when sold. As far as I can tell this seems to work fine, the only issue I note is that you lose the ‘nature’ of the cost being added into the inventory value, i.e. there is way to look at the cost/value of the on-hand by cost element - i.e. how much was material/purchase cost, how much was freight/duty etc. but none the less it does allow these costs to be gotten into the inventory valuation.
@alasdair, the problem is that it’s not possible to set quantity to zero on purchase invoices. You can do it on cash transactions or journal entries though.
I’m going to make it possible on purchase invoices too.
Hi @lubos, I have just started using manager and it is fantastic thank you!! - quick question is there any time frame that the above ie create a purchase invoice without having to have a quantity will be implemented? as I too have on costs associated with an inventory item, now I can do a work around and I could use a journal however I would prefer use this method if it is not too far away?
Thanks for the clarification @lubos. Yeah, since (I) I don’t want to lose the nature of the freight or other cost invoice and (ii) if the freight charge on the invoice typically has a single for freight I like to enter it reflecting that fact then - I book to freight expense first then do a JE to allocate to whatever items and quantities I choose. Until an invoice has a header/lines/distributions and you can prorate the freight cost across the other lines creating appropriate distributions, I’m not a fan of being able to enter 0 quantities on the purchase invoice as this would result in entering invoice lines that do not ‘mirror’ whats on the Actual paper invoice. Thoughts?
@alasdair, I wouldn’t be too much concerned that zero quantity is not how it’s shown on purchase invoice. Logically speaking, the purchase invoice was for freight of inventory item(s) only. So when categorizing this purchase invoice from accounting point of view, your quantity has increased by zero, value has increased by freight cost. So that’s how it should be entered.
Consider this, purchase invoice could be a single line item of $1,000 but you know that it is for freight of 3 different inventory items. So even though purchase invoice was single line item, you still need to split it into three different line items so the correct cost can be attributed to each inventory item type.
It’s not a big deal if line items on paper invoice don’t match how it’s recorded in your books. It’s common not to match (companies which split common expenses among divisions do this all the time). Your supplier sees the invoice as simple freight income, for you it’s capitalization of one or more inventory items.
The only important thing is that purchase invoice total on paper invoice and in Manager must match and that condition will be met.
The only problem is that if you enter quantity “zero”, line item total will be “zero”. I need to make an adjustment to the program which will allow you to use “zero” quantity and still allocate the cost to inventory items. This is not currently possible as you can see (amount column is empty for line items with zero quantity)
Thank you. I did notice that and was wondering if I was missing something.
Wouldn’t it be easier to add freight as one of the rows along with the tax (which is thereafter assigned to the inventory on the purchase order and Carriage inwards accounts respectively)?
