wrong. there is partial COG known which should be considered as inventory-cost. there is no reason to show zero expense which increases the profit of the business and there is no reason to hold the known cost as an asset for a sold inventory thereby increasing the balance sheet of the business.
i never said anything about Manager considering value of insufficient qauntity as an asset. all I said was the value of available raw material is no longer an asset once the finished item is sold. I really do not understand how you can claim ownership of an item you already sold.
and that is what I did exactly. I created goods receipts for the raw materials, I produced the finished item and I sold them. as you can see from the screenshots Manager is not doing what it is supposed to be doing. 10 quantity were produced and 10 quantity were sold. why would Manager still show a negative 10 when the quantity part of the accounting is correct. inventory management is primarily based on quantity. you order items when you do not have stock. negative 10 is not something a purchase person wants to see when he checks the stock level for purchasing.
I am sorry. I am taking myself out of this discussion. I stand with @lubos on this. I believe Manager works correctly from an accounting perspective. Physical inventory management and managerial review and understanding of financial statements are separate topics that do not belong on this forum.
@Lubos asked for possible ways forwards and we keep repeating the same arguments. You actually have a point here. Why does Manager only let you know that an inventory item (material) is insufficient to conclude a production order and still let it continue. Maybe it should not allow the production order to be completed if items are insufficiently available.
as you can see from my screenshots, Manager considers the raw materials are insuffcient in the production order even though the quantity is fully made available with goods receipts. a production order, from the perspective of a production department in a business, does not need to know the inventory value. all they need is quantity. but Manager considers a production order pending and estimates the inventory stock levels purely based on inventory value.
Alright. So this means you do not really advocate for some kind of default cost price (if real one is unavailable) and accept that if there is negative inventory scenario, then cost of goods sold will be always understated. In other words, you accept only real costs to be expensed.
We have an agreement here.
Where we do not have an agreement is that when making production order with insufficent quantities, you want it to proceed with whatever costs are known so if the finished item is sold, then you accept that cost of goods sold will be still understated but less.
This is how Manager worked prior July 2020 and this concept was creating lots of confusion because people knew cost of goods sold was understated, just didn’t understand why. Nowhere the system would tell them why.
Production orders (insufficent quantity) solved this by actually everyone having understanding “why”. Even if you do not agree, it’s not like you are confused and don’t know what is going on. You know very well what is happening. And this is one of the principles I’m following when designing the program. Making sure people actually understand what is going on. There are some trade-offs here to be made.
I can’t go back to implementation that brings less clarity into inventory accounting even if it makes reports “more accurate”. “More accurate” is not good enough. It should either be 100% accurate or the program should scream, shout and kick around. This is what Production in Progress account does.
Now, I’m not saying your complaint is invalid. I just don’t agree with your solution and believe there must be another way that will work for both of us. That is reports could be more accurate (your request) but the program should continue “scream, shout and kick around” (my request).
just to highlight the seriousness of this issue when accounting at the end of a tax period in a situation where the supplier themselves have decided to issue pending invoice in the next tax period for the goods already delivered, I am changing the figures for the transactions I posted in post #77 above.
now as per Manager, at the end of the tax period I would have a net profit 2,000,000 when the actual profit is only 1,400,000. so I need to pay income tax on an additional 600,000 just because Manager does not recognize this known purchase as an expense.
on the balance sheet side, I have an equity of 2,000,000 when actually it is only 1,400,000. because Manager still thinks I own the 600,000 worth of raw material I already used to produce a finished item and sold off during the tax period.
then moving on to take physical stock of inventory at the end of tax period just to find the quantities are all wrong in Manager.
@sharpdrivetek I don’t think this is a valid case. At the end of the tax period you make all necessary entries. The normal practice is to enter bills even if official invoices based on the contract/agreement are yet to be received.
purchase invoices need to be entered only when a supplier issues their invoice. it is an inward transaction. we do not have to send purchase invoices to supplier.
I am not explaining a scenario where the purchase invoice is in transit through courier or post. the scenario is where the supplier has not made their sales invoice which in turn becomes a purchase invoice for us.
@sharpdrivetek@Ealfardan maybe I have a solution that is not against my principles and at the same time would make sold portion of Production in Progress make it into P&L.
So you enter a placeholder Purchase invoice as @eko mentioned for the purpose of financial reporting and update it when the official one arrives.
The proposed solution by @lubos will work for inventory items cost of sales, it will not work for service contract cost of sales. You have to enter a placeholder invoice until the supplier sends their bill and then you update the bill.
why do we need to commit fraud on purpose? the supplier has not issued any invoice for their sales to us. the supplier will be issuing the invoice only in the next financial period. I do not know how any tax jurisdiction would allow entering fake purchase invoices assuming a supplier would issue them invoices in the future.
if your suggestion is accepted for a practical situation, then a business could simply enter any number of purchase invoices to show an inflated expense thereby reducing their income to avoid any taxes on income.
@sharpdrivetek You seem to be contradicting yourself. Why get the issue to this stage if you don’t want this expense to be represented in your books (P&L)?
We have to be realistic here.
No tax authority in the world, I believe, will need finalized financial accounts for income tax purposes (for both direct and indirect taxes) the day after the fiscal year/period closes. I think that all jurisdictions give a reasonable amount of time for any events occurring after the reporting date to be submitted/captured.
This is the practice. You only have three choices:
Enter nothing and report the actual cost of sales (invoices on hand).
Enter a temporal invoice. This is not fraud, and no tax regime on the globe would reject it if you create a placeholder invoice and back it up with your delivery notes and contract documentation (if supplier is incapable of submitting an invoice)
If the above is not possible due to some procedures, force the supplier to issue the invoice. Why would someone provide you with a delivery notice and then decide to send you the bill at a later date, knowing full well that the transaction is tied to the financial year and that you must claim the expenditure in your financial statements? It makes no sense, and it is not reasonable.
Defer the expenditure to the period they issue the invoice if the Supplier is legally permitted to do so based on specific circumstances mentioned in the contract terms. In that case, you and the supplier have agreed on the timing of the expense, and the tax authorities will consider that as the time of supply.
The solution provided by @lubos is no different from what I’m proposing here. They are all reporting the cost with a placeholder. It doesn’t matter if it is going to be through a journal entry, a purchase invoice, or a P&L Production in Progress entry.
Why not simply value the goods receipts as I mentioned in another post? This can be done on the basis of an already received supplier invoice or the prices indicated on the purchase order, which normally are confirmed by the supplier.
If the invoice contains only part of the quantity received, then only the actual quantity invoiced is valuated at the invoice price at goods receipt. The remaining quantity is valuated at the purchase order price.
I know that at least SAP handles goods receipts that way. (See their BLOG entry about this here)
contradictory to what you understood, I want the expense to appear in the P&L. there is a purchase invoice which is held up as assets in the balance sheet because few other raw materials used in the production order do not have purchase invoices for them.
you are missing the whole point. I never said the tax authorities need a finalized report the next day a financial period ends. in a production order, few raw materials used have purchase invoices while few raw materials do not have purchase invoices. these raw materials will have a purchase date which is not related the tax period of the ones that already have purchase invoices.
for example, tax period ending 31st December, half of the raw materials already have a purchase invoice. the other half has purchase invoices dated 15th January. so when you create a P&L for the tax period ending 31st December, your expenses for the purchase invoices received before 31st December are not reflected in the accounts because according to Manager the production order will be completed and the full inventory-cost will be transferred only on 15th January.
