Non-Inventory Items

1

I am a puzzled at the behavior of non-inventory items, please help me.

We are a manufacturing company and we are using the production order module for production of items already created as an inventory item. Through production order, we create production of finished item (created as inventory item) by inputting the required “bills of material”. Everything is working smoothly here.

However, we have trading business too and we need to sell and buy certain items to the same customers. So we decided to use the option of non-inventory module to keep those items as separate from our usual inventory items list so to track profit of production and trading separate. With this in mind, I proceeded as below.

I created a non-inventory item and ticked the box of “this item can be purchased” & “this item can be sold” then selected same account (which I created in “Income group”) for the purchase and sale amount. The purpose of same account was to track the difference between buying and selling amount would reflect in balance as negative & positive figures (in other words profit and loss). The system is working fine to achieve my desired purpose but I am confused with the behavior of non-inventory item as below.

I purchased a non-inventory item qty 100pcs through purchase Invoice and received that quantity by “good receipt” into a certain inventory location. Then, delivered 50pcs through “Delivery Note” to a certain customer but did not make a “sale invoice”. It was observed that, in the “customer” module, the item was not shown in “qty to invoice” column as in case with “inventory items”. In fact, this transaction was not reflected in the customer module. Then I deleted the Delivery Note.

Next, likewise, I sold 50 pcs through Sales Invoice to a certain customer but did not create a “delivery note”. It was observed that, in the “customer” module, the item was not shown in “qty to deliver” column as in case with “inventory items”. In fact, in this case too, this transaction was not reflected in the customer module.

Then, as with “inventory item”, I delivered through delivery note the above Invoice product thereby completing the required transaction of both delivery & Invoicing. Yet, this transaction was not reflected in the customer module.

I am confused how this non-inventory item can work and if I am using it in a wrong or improper way. So, I have below question:

  1. EXAMPLE: If we use delivery note (for delivery) but not make invoice. Since, it will not be shown in the customer module as “qty to invoice” how am I supposed to know this without an alert in the customer module like in case with inventory item

  2. EXAMPLE: If we use sale invoice (for sale) but not make delivery note. Since, it will not be shown in the customer module as “qty to delivery” how am I supposed to know this without an alert in the customer module like in case with inventory item

  3. EXAMPLE: I made purchase invoice and received the goods by “goods receipt” into a certain Inventory location, that location doesn’t show anything.

  4. In the “REPORT” by sales invoice totals by items, the non-inventory is shown but when i click on the amount, it takes me to the relative invoice which, confusingly, show the sales quantity as negative.

I need your help to let me know if

  1. I am using the non inventory module in wrong way
  2. how can the non-inventory item act in same way like inventory item in customer module.
  3. As you can see above, I purchased 100 pce (using purchase invoice & goods receipt) and sold 50 pcs (using sales invoice & delivery note) where & how can I see the balance stock quantity.

Last Question:

If I use same Delivery Note and same Sales Invoice for both non-inventory & inventory items for transaction to the same customer, is there any possibility of mistake/miscalculation in computation of Profit & Loss Accounts or any error in reports

Thanks a lot

2

I believe all your confusion will be resolved if you realize that non-inventory items have no interactions with goods receipts or delivery notes. Nor do they appear in any counts of anything: themselves, quantities to deliver or receive, or anything else. They have no value in Inventory on hand. They do not contribute to Inventory - cost.

Non-inventory items are merely shortcuts for entering line items on purchase and sales transactions. They help standardize names, descriptions, units, and prices. The only reason for allowing to designate whether they can be sold and purchased is so the program knows which dropdown lists to show them in.

You cannot use them on the bill of materials for a production order. And you cannot use them to sell an inventory item you produced.

Non-inventory items are useful for selling common services. You can use them for selling physical goods that are not accounted for as inventory items. For example, a furniture maker might build furniture only for custom orders and not keep any in stock. The finished piece could be a non-inventory item so the dimensions and description do not have to be entered every time.

3

Thanks for your response.

Your explanation is clear. Also, understood that the non-inventory items have no interaction with any of goods receipt, delivery note.

As I explained above, we intend to use non-inventory items only for trading (buying & selling) in same account created (in Income group) for that particular non-inventory commodity. At the end of the day, the differnce in Buying & Selling Amounts would reflect the profit & loss which would add to or less the Net Profit & Loss. Is it right to use this way and for the intended purpose to have effect in the profit & loss of the company.

Next, I would repeat my question that I asked in my previous post, please let me have your comment
Question: If I use same Delivery Note and same Sales Invoice for both non-inventory & inventory items for transaction to the same customer, is there any possibility of mistake/miscalculation in computation of Profit & Loss Accounts or any error in reports

Thanks a lot

4

From a financial viewpoint, it is neither right nor wrong. It is a little unusual, though. Normally, income is recorded to one account and expenses to another to make it obvious which is which. The way you are doing it, you would not know if you sold 100,000 with expenses of 99,000 for a net income of 1000 or sold 2,000 with expenses of 1,000 for the same net income. The profit margins, obviously, would be very different and the overall picture of your company’s performance would be much clearer in the second case.

Auditors would prefer the second case. In some locations, you might legally be required to separate income and expenses into separate accounts, too.

To answer your repeated question, no, there should not be any problems with inventory and non-inventory items on the same transactions, regardless of type. If you discover one, that would be a bug that has not previously been reported.

5

My question is in the production module.
If you want to add non inventory cost to production. Where do you classify them in chart of account?

For example. If I have Finished good as 20Bags
And bill of materials needed to produce 20bags had also been imputed. I also want the system to take into consideration overhead cost of producing that 20bags so that it can build that into Average price of the bags. Will this non inventory cost be classified as income or expenses?

6

Anywhere that is appropriate. Direct labor costs of production, for example, could be allocated to a Wages account. Non-inventory costs are posted as credits to the account(s) where they are allocated. So they reduce the balance of an expense account as the costs are debited to Inventory on hand for the finished goods. See the Guide: https://www.manager.io/guides/7767.

Indirect overhead costs are more difficult. Under some accounting standards, they cannot be added at all because they are, by definition, indirect. In other words, they are costs that cannot be associated with specific activities. But if, in your jurisdiction and under your accounting standards, they can be included, you just choose the appropriate accounts.

Neither. The production order converts costs into assets. They remain assets in Inventory on hand until the finished goods are sold, when they are transferred as expenses to Inventory - cost. Ultimately, the complete cycle converts expenses to assets and back to expenses.

7

4 posts were split to a new topic: Assigning non-inventory costs to inventory items