Hello, I feel that the removal of the inventory write-off allocation feature should be reverted to its original state. Changes like these often surprise users who are unaware of them. The feature allowing the allocation of inventory write-off expenses made operations much easier.
Additionally, my inventory cost account is now being filled with inventory purchase transactions. Previously, I used the inventory write-off method to allocate inventory costs, but with this change in allocation, everything I’ve worked on for years has suddenly disappeared.
The issue is that my new approach to inventory is unable to calculate costing on transaction-level basis. And if inventory write-offs allow you to select target account for the write-off, then inventory cost needs to be known.
Obviously, journal entry can always be made where you can credit inventory item and debit custom account because in that case you are entering the debit/credit amount yourself.
Why is it not appropriate to just write it off into cost of goods sales account?
That doesn’t sound right. Certain inventory write-offs were converted to journal entries to maintain the figures and quantities should be the same before/after.
Actually I’m confuse with this removal of inventory write-off feature regard to cost allocation. That inventory write off tab still exist but only can remove the quantity, so what exactly account allocated to record this transaction?
Also there are some business that using their inventory not for sale, so they could use inventory write-off to record the usage and able to allocated to certain CoA. Now, they are confuse how to do that?
A solution from @lubos comes that can use entry journal, but not all staff in every single business that handling inventory are accountant or at least understand accountant, so they can’t do journal and can do write-off.
Most businesses would use inventory write-off to adjust quantities for inventory items that have been damaged, spoiled, missing or for some reason not possible to sell anymore. In all these cases it’s appropriate to just write them off into cost of goods sold account.
Sure, you could make a case that some businesses would like to see on their P&L separate expense line for spoiled or stolen goods. I’m not able to support this use-case however I can add report that can show percentage of goods being missing or spoiled out of total sales. I can even make that report show some costing and you can make a journal entry if you want those figures to be reflected on your P&L somehow.
I completely agree. Even accountant would not typically know the debit/credit amounts.
I will need to understand these use-cases where you don’t want inventory write-off to affect cost of goods sold account.
It will increase your cost of goods sold. The issue is that you can’t make it not to affect cost of goods sold account.
In my opinion, cost of goods sold is the very last place one would want to post the expense of a write-off. As I’ve watched this play out, it has seemed like you were on the wrong track. Your recent post seems to confirm it. Written-off goods most definitely have values as well as quantities. You seem to have backed into an untenable corner.
I have an Inventory Write off account in Expenses.
This is broken down into four sub accounts-
Stolen or Lost
Damaged/Faulty
Obsolete
Expired
In none of those cases has the goods been “Sold” and therefore should not be considered as part of Cost of Goods Sold, which should, I believe, have a corresponding income account.
It’s not wrong either way. If you look at profit & loss statements of reporting entities, they will dump everything to Cost of Goods Sold account. Mostly because stolen, damaged, expired goods are such a small portion of CoGS, it would be just a noise added to P&L if segmented out.
I’m not saying it’s a bad idea though. P&L is meant to be serving whoever is the consumer. If the business owner wants to see the segmentation for themselves directly on P&L, that’s a valid request.
I have a few ideas how this could be solved under new approach to inventory. I’m working on testing them out. It’s possible functionality won’t be lost. That would be ideal outcome for all of us.
Agree with this, so when the past inventory write-off method was existed, I used it to allocate to COGS account easily just put quantity on it and determine the COGS or even another account related. I know this maybe wrong, but some business using perpetual method to recognize the COGS so I thought easiest way to write-off inventory as a cogs in perpetual method was using inventory write-off tab and but now using journal entry is sufferring us to allocated it because we need to think the value/price per item.
Hopefully you’ll work to make this still easier without using inventory write-off anymore to record the usage of inventory (even using perpetual).
@Lubos where reclassification of some items would be better such as on returned goods that still have value and can be sold as B-stock.
Also some could be qualified as development expenses for example when a restaurant kitchen is trying new recipes that are not sold to customers. If these are part of COGs that would mess up the gross-margin that is often used as guidance for setting prices.
Another case is when the supplier agrees to give a credit for spoiled goods such as flat beer or soft-drinks then this should become a supplier’s liability rather than a loss for the company.
These are day to day examples applicable in our retail and restaurant businesses. In our case we prevent issues as we do all via separate POS systems but quite some forum users seem to use Manager for this also and thus the change definitely will affect their financial statements, especially in the case of supplier credit.
Actually i thought that the Inventory unit costs defined under settings would be used for every transaction including cost per sale invoice, writeoffs etc. But now i think all inventory transactions (purchases/debit notes) are going directly to inventory cost and difference of Opening and Closing inventory is added to it. It looks like a simpler approach has been adopted here.
Anyway, the issue being discussed here could be solved by introducing a separate section just like non-inventory costs on production order and let the user enter the amount they want to allocate to a specific account. This way no unit cost would be needed, they can also allocate a portion of the total cost to a particular account and the amounts won’t change in the future.
@lubos@Tut that’s what i mean it we must have availability which expense account in “P/L” income sheet that we will allocate inventory write off QTY WITH VALUE
@lubos@Tut that’s what i mean it we must have availability which expense account in “P/L” income sheet that we will allocate inventory write off QTY WITH VALUE
Sorry @Rami_Gomaa but this is not what I said. It really does not matter that much when related to expense accounts in P&L but it matters in case of supplier credit which is a balance sheet account not a P&L account.
Sure, what I was explaining in my last reply to you is that it does not matter where in P&L the expenses are recorded be it in COGs or as separate expense, and I should have added in relation to Net Profit. It does matter for Gross Margin and Net Income calculations that may help you with management decisions but not with taxation.
Good evening, everyone I have a query regarding inventory.
Previously, when we needed to perform a write-off for inventory, we could see any related expenses or costs in the respective tabs. However, now these expenses are no longer appearing, and there is no tab showing the amounts either. I would appreciate any guidance or solutions regarding this issue. Thank you."
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