The Inventory - Sales account is not available for selection in the Journal drop down box.
Journal
Chart of Accounts
Why do you need this? Generally what I suggest, if you want to sell inventory using journal entry, then you will have to record full transaction, that is:
- Credit
inventory on handasset (this is where you choose inventory item) - Debit
inventory - costexpense - Credit
inventory - salesincome
and finally debit whatever asset account which has increased as a result of inventory sale.
The only issue right now is that Inventory - sales and Inventory - cost accounts have special meaning in Manager and journal entries can’t see these two accounts but that will be changing in upcoming days and you will be able to debit/credit those accounts as well.
Prior to the recent Inventory Items changes this wasn’t required because you could select the Account first and Inventory Item second, but that process is now reversed with one selecting the Inventory Item first resulting in a default Account depending on the transaction - a purchase now defaults to Inventory on Hand and a sale now defaults to Inventory - Sale. Which is probably perfectly okay for 99.9% of transactions.
But now, if you have a single mixed cash transaction (both purchase & sale) then the dominant side of the transaction determines the Account to be used. e.g. a payment would result in all items having the Account - Inventory on Hand, or a receipt would result in all items having the Account - Inventory Sales.
So the solution adopted was to put the less dominant side to a Clearing Account and the re-allocate by Journal - hence the need for Inventory - Sales. An alternate would be to split the transaction into separate payment and receipt components but then the Manager cash account wouldn’t have an exactly matching figure to the Bank Statement.
I completely agree that Inventory - Cost Expenses, shouldn’t be available in Journals.
Also note that the Inventory on Hand account name has been changed but it defaults to the original in the transaction - that is of no consequence
Before we go any further, one issue here is that you are not using inventory items for what they’ve been intended to be used.
So it’s probably better if you describe your use case and then I can add module which would appropriately deal with it.
I disagree, I purchase stock and I sell stock and up until the recent Inventory Item selection change, Manager has worked perfectly, in fact fantastically well with regards to this division of the enterprise.
Having both a purchase and a sale transaction within the one cash transaction is very unusual, in fact rare, so it doesn’t warrant any consideration towards an added module.
Since the earlier post, I have realised that there were other alternatives available within the existing Manager structure which would equally resolve the situation without you needing to allow Inventory - Sales within Journals. (A decision which I respect)
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when such rare circumstances arise, treat the purchase & sale as separate purchase and sale events and then let the cash settlement standalone, Similar to “Handling situation where customer is also supplier”, which is probably more accurate as the cash settlement always occurs two days after the actual purchase/sale events, or
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as currently adopted, putting the less dominant side to a clearing account and then instead of using a Journal for the reallocation, use either a zero valued Receive/Spend Money to re-allocate the Clearing account entry - as it is cash related.
On reflection, if I had more fully considered the Manager options available rather then reacting to what I couldn’t instantly do, then this topic/post didn’t need to be created.
Just for your information, below is the division’s COA’s
I was under impression you didn’t use inventory items to manage stock on hand. So alright. I take it back.
I was thinking about it before and my conclusion was that it’s something that should never happen. Let me demonstrate.
You are probably thinking when you sell inventory item to customer, customer comes back and wants to replace the old item with different one.
You might be thinking, this is both purchase and sale at the same time but really it isn’t. It’s still pure sale (with negative sale component).
In this case you issue new sales invoice or just cash receipt and will enter first item customer is returning as negative quantity, then what customer is getting instead as positive quantity. The difference should be what customer needs to pay.
It will be possible to record inventory sales using journal entries but it will take 4 lines instead of previously 2. This change is related how custom control accounts are coming into the place. It’s just a trade-off I needed to make to push Manager forward.
Sorry - should have explained the case better as you earlier requested - share market trading.
I instruct the broker to purchase a stock - say BHP 100 @ 5.00 = 500.00 + Fee 20.00
I also instruct the broker to sell a stock - say NAB 50 @ 6.00 = 300.00 - Fee 20.00
If both of these occur on the same day then the Broker takes the Net 240.00 from the bank account.
Prior to the Inventory Item changes the transaction was Spend Money = 240.00
Inventory on Hand BHP 100 : 5.00 : 500.00
Inventory on Hand BHP () : 20.00 : 20.00 () Qty = zero - Broker Fee treated as Freight-in
Inventory - Sales NAB -50 : 6.00 : -300.00
Disposal Broker Fee () : 20.00 : 20.00 () Expensed directly - no Freight-in/out functionality
But now with the Inventory Item changes, a Spend Money transaction automatically defaults all Inventory Items entries to Inventory on Hand as illustrated above and vice versa for Receive Money.
The initial solution was to put the sale component to a clearing account - Spend Money = 240.00
Inventory on Hand BHP 100 : 5.00 : 500.00
Inventory on Hand BHP () : 20.00 : 20.00 () Qty = zero - Broker Fee treated as Freight-in
Clearing Account : -280.00
and then Journal
Debit Clearing Account 280.00
Credit Inventory - Sales NAB -50 : 6.00 : -300.00
Debit Disposal Broker Fee 20.00
But this was based on my assumption that the Inventory on Hand transfer to Inventory - Cost Expense would have been automatically generated via the Inventory Item journal entry, but based on your comments above I can now see that that assumption was totally flawed. While the use of the Journal appeared to be the simple solution, in fact, it was the totally wrong solution from the beginning.
I now fully appreciate why Inventory - Sales was not selectable in Journals, the COS consideration/complication could have Inventory valuations really messed up.
I still think using inventory items to track marketable securities is not what inventory items have been made for.
So rather than trying to bend Manager to this use case, why not have a tab called Investments which would be actually made for your use case?
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I also use inventory to manage my marketable securities as that is the workflow found fit until now. After my recent update (might have missed few updates in between), I see this workflow changed and looks like not useful for what I am using for.
I could not find Investment tab in version 16.5.96. You mean “Intangible Asset”?
Maybe not, but its functioning fabulously as currently set up, doesn’t justify an “Investment” tab. Not bending Manager at all - just buying and selling stock.
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Besides, “investments” is a very broad title, it could include rental properties, term deposits, precious metals, jewellery, art works etc.
Initially tried the Fixed Assets tab but the default depreciation accounts were just an annoyance.
There is a difference though.
When you have inventory items, some credits to Inventory on hand will trigger CoGS (e.g. sale to customer) and some credits won’t trigger CoGS (e.g. returns to supplier)
When it comes to marketable securities, every credit will trigger calculation for realized gains. So this module would be simpler to work with and would allow you the workflow you require.
I agree, maybe we need to come up with better name.
Based on some past “poor” decisions - this would be a great feature to have, however
And this is where you have a winning point, as there is no COGS as such involved because each closing out transaction ends up as either profit on sale (hopefully) or loss on sale.
As to name “Securities” as this would embrace both Futures and short and long term positions.
The “investment” tab is only a concept under discussion not an actual tab
@Brucanna, Thanks for clarifying. I realized that I was misreading previous conversations.
I am not much into accounting but using Manager to manage my personal account. I really appreciate if someone can help me understand best way to handle share trading using Manager.
Thanks,
Hello @shah_p_r, sorry I missed your first post. The recently changed workflow shouldn’t make any impact on your usage of the Inventory tab for marketable securities. It hasn’t for me.
Perhaps, you could detail where you think its not as useful ? Have only had to make one modification.
As to your last post, take a look at the above chart of account as for an account structure and then ask specific questions. How and when do you currently process your successful buy and sell orders - on completion or on settlement.
For purchase and sale of security, I am doing journal entry for inventory and debit/credit my trading account with broker. I was able to select Inventory - Sale account and it was working fine till now.
Now as I can’t select inventory - sale account, I am selecting quantity on hand account and entering negative quantity. But this is really a negative purchase hence “Inventory Quantity Movement” account shows this as negative purchase. This is still ok until I realize that report does not show transaction/movement if opening and closing balance is zero. i.e. if report is for a month and I buy and sell the stock within that month. I am not able to find easy and reliable way to track all the transaction (with qty) during a particular period.
Please help.
Firstly, you shouldn’t be using Journals at all and especially since the more recent update changes.
As your Broker is both the Supplier and the Customer it’s also not very practical to use those tabs, therefore it’s best to put all buy/sell trades through a Cash Account or “pretend” Cash Account.
Is your Broker Trading Account also your Cash Management Account (surplus funds stay in the account) or do you transfer funds to/from the Trading Account using a separate bank account ?
Regardless of which, its best (easiest) to process your buy/sell trades as Spend Money or Receive Money transactions (which is actually what you are doing) rather then any other way.
If your Trading Account is also a Cash Management Account - then under Cash Accounts - Cash at Bank - open a Cash Management Account and process all buy/sell trades here.
If your Trading Account is settled via a separate bank account - then under Cash Accounts - Cash at Bank - open a “pretend” account called Trading CM Account and process all buy/sell trades here. Then use Transfer Money to shift any fund movements between the separate bank account and the Trading CM Account. The Trading CM Account will probably have a zero balance most of the time - depending on your level of trading activity.
By recording the buy/sell transactions this way all Inventory movements will flow naturally on.
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OK, the last thing is to resolve what calculation method should be used to calculate realized gains or losses.
Inventory is using perpetual moving average.
I think the same method should be used to calculate realized gains or losses, correct?
For myself its not relevant, if I make multiple buys of the same stock at different prices each one becomes a new Inventory item - which enables me to control how I generate the profits & losses.
Keeping them separate case study. I buy 1000 AAA at 2.00, then the price falls to 1.50 and I buy 1000 more. If the price moves back to over 2.00 then I could sell the 2.00’s and let the profit run on the 1.50’s.
Combining them case study - using a cost averaging system provides a more confusing result.
a) buy 1000 at 2.00 - 2000.00, b) buy 1000 at 1.50 - 1500.00, which gives you 2000 for 3500.00 at an average of 1.75.
Now if I sell 1000 at 2.00 there is a profit of 0.25 per share, and the remaining holdings purchased at 1.50 would be showing a loss of .25 per share due to the average cost being 1.75.
So FIFO maybe a more relevant pricing system, but personally I wouldn’t allow the combining of
separate AAA stock buys into the one (same) Inventory item. To my mind this would make calculations so much cleaner. This is particularly relevant to DRP’s discussed later.
But before any costing systems there are two other processing considerations to be resolved:
When you purchase a stock you also incur a brokerage fee which currently can be incorporated into the purchase average price by using the “Freight In” features. However, on selling a stock you also incur a brokerage fee which currently can’t be incorporated as a “Freight Out”. This needs to be available also for calculating the selling average price.
Also if you have multiple AAA inventory items and sell them all in one lot - the brokerage fee needs to be either allocated against the first Inventory item select or spread over all the Inventory items selected for the disposal. Toss of the coin.
Dividend Reinvestment Plan (DRP) shares need extra special consideration due to taxation.
Normally if a company pays a dividend of 50, you get a cash payment but some companies issue extra shares in lieu of that payment. The inventory pricing for these shouldn’t be mixed into the pricing of the original purchase.
Case study: You purchase 500 BBB at 2.00, at dividend time these shares maybe worth 2.50 so you will receive an additional 20 (50/2.50). For taxation purposes you would declare the Dividend Income of 50. But on the disposal of these dividend shares any profit or loss would be based on the 2.50, not at an adjusted cost price of 2.02 (1000 + 50) / (500 + 20)
Now if the 520 were sold for 2.30 then there would be on the 500 a profit of 0.30 per share and on the 20 a loss of 0.20 per share - not a profit of 0.28 per share on all 520.
Hence the suggestion that DRP’s probably need their own input as frequently there can be carry forward balances : Dividend - 50.00, Share Price - 1.27 = 39 shares and c/f balance of 0.37.
DRP’s re-emphasises my point that each purchase and DRP should be a new inventory item and not combinable into a single inventory item - perhaps they could become automatic sub-items within an inventory item so there is a global view of qty and average cost.
One last thing, average cost should be displayed to 3 decimal places as share prices are quoted to 3 decimal places. In fact it would be nice if the current Inventory average cost could be 3 decimal places. Currently at 2 decimal place, the 0.05 could represent anything from 0.046 to 0.54 and makes market price comparisons difficult without a calculator