Purchase & Sale of Inventory Items

1

I have entered a purchase invoice for one inventory item using the Inventory account in the asset category. Next step, I have made a sales invoice using Sales of Inventory item account. But when I tried to check the GL summary for Inventory Item Account… the total does not match. Did I miss something in the process??

Please help.

Purchase Invoice: 1,547 (INVENTORY)
Sales Invoice: 871

Total Balance of Inventory should be 676. But in the summary, only the total amount of the purchase invoice is showing. Sales invoice total shows “0”

2

Could you post some screenshot? Specifically, post screenshot of how your purchase invoice was recorded, then how sales invoice was recorded and finally screenshot from your Summary tab.

3

Thank you for your quick response. I was able to figure out the problem though. I need your assistance on another thing again. How does the purchase of inventory items calculated? the figure automatically calculates and appears in the profit and loss report after I have made these entries. My beg. inventory is 22,481.83

Purchase Invoice using GL account Inventory Items = 44,397.50

Sales of Inventory Items = 50,902.20

The total Purchase of inventory balance is showing 14,724

4

Manager is using average costing method.

See average costing method example on our wiki.

5

Thank you again for your reply. However im still not able to figure it out. Please see my entries.

Beginning Inventory is 22,481,83

Purchases is 44,397.50

  • I have entered only 1 unit per total invoice amount

Purchase of inventory items is showing 14,724. — I still cant figure how this figure came out

6

Purchase of inventory items are the cost of goods you have sold. When you buy inventory, it is not an expense, it is an asset called Inventory on hand. Its value is increased by the amount in your purchase invoice.

Only when you sell the goods then the value of Inventory on hand is decreased by the cost of goods you have sold. That is the purchase of inventory items value.

Meaning
Beginning inventory + Purchase invoice = Inventory on hand + Purchase of inventory items.

In your case
22,481.83 + 44397.50 = Inventory on hand + 14,724

So you will currently have 52,155.33 worth of Inventory on hand

Hope that makes it clear.

7

@alim is correct. The whole point of inventory system is to make sure only sold portion of inventory is shown as an expense while unsold portion sits in your books as an asset.

Have a look at Accounting coach website where mechanics of inventory from accounting point of view are explained further.

8

Hi Alim,

Thank you for your prompt reply. However I still cnt figure it out though. Please bear with me. My problem is how the amount of 14,724 has been calculated? This is the scenario:

Beg. Inventory is 22,481.33
Purchase Invoice for Inventory Items is 44,397.50

Sales of Inventory Items are as follows:
27,466.70
23,435.50
TOTAL: 50,902.20

  • After these entries, when I view P&L report, Purchase of Inventory items in the Expense section shows a total figure of 35,102.41 [ I CAN’T FIGURE OUT HOW THIS AMOUNT WAS CALCULATED]

Hoping for your kind assistance.

9

You need to provide more information for the purpose of calculating cost of goods sold. By the way it’s irrelevant, what prices you have on sales invoices - sale prices have no impact on CoGS amount.

So here is what you need to do.

  • You said you have opening balance of inventory 22,481.33. What’s that, what inventory items are in it, how many and what was purchase price for those inventory items?
  • Which inventory items you’ve bought, for how much, how many and when?
  • Which inventory items you’ve sold, how many and when?

All these information are required to explain how Manager ended up with figure of 35,012.41 on your Profit & Loss Statement.

10

Hi Lubos,

Thank you for your reply. The entries are pretty basic as the business is new and there was no proper process of receipting and invoicing. The entries were just sum of all amounts for sales and purchases. These are the entries:

Sales:

Date Account Inventory Item Qty Unit Price Amount

01-09-2013 Sales of Invty Items Meat Beef 1 42,194.50 42,194.50

01-10-2013 Sales of Invty Items Meat Beef 1 23,435.50 23,435.50

01-10-2013 Sales of Invty Items Meat Beef 1 27,466.70 27,466.70

Purchase:

01-09-2013 Inventory on Hand Meat Beef 1 22,481.83 22,481.83

01-10-2013 Inventory on Hand Meat Beef 1 225.50 225.50

01-10-2013 Inventory on Hand Meat Beef 1 545.00 545.00

01-10-2013 Inventory on Hand Meat Beef 1 3,445.80 3,445.80

01-10-2013 Inventory on Hand Meat Beef 1 10,780.00 10,780.00

01-10-2013 Inventory on Hand Meat Beef 1 625.00 625.00

01-10-2013 Inventory on Hand Meat Beef 1 24,314.00 24,314.00
01-10-2013 Inventory on Hand Meat Beef 1 24,314.00 2,661.00
01-10-2013 Inventory on Hand Meat Beef 1 24,314.00 1,801.20

TOTAL PURCHASE INVOICE FOR OCT. 44,397.50
TOTAL SALES FOR OCT. 93,096.70

  • IN PROFIT AND LOSS, TOTAL PURCHASES FOR INVENTORY ITEMS CALCULATED IS 33,581.21 ---- Requesting your kind assistance to please explain how this amount was calculated after the entries.
11

You only have 1 item in September and its cost is Purchase of Inventory items for September, which is 22,481.83

Since manager uses average costing method, your October purchase is averaged by dividing total purchase invoice value by the amount of items.

44,397.5 / 8 = 5,549.6875

You sold two items in October so Purchase of Inventory items is calculated as

5,549.6875 x 2 = 11,099.375

So total Purchase of Inventory items is calculated by adding the value from September with the value from October

11,099.375 + 22,481.83 = 33,581.205 rounded up to 33,581.21

1 Like
12

@beth_alshams variations in your prices are so large that you need to rethink what you are really doing. Beef is commodity, what’s up with purchasing 1 qty once for 225.50 and then for 22,481.83. That’s non-sense.

You probably shouldn’t be using inventory items module at all and just categorize your purchases as regular expense (not inventory on hand) and your sales as regular income.

1 Like
13

Hi, I probably also need to do that, but I don’t know under which expense to categorize my purchases. please help

14

You can create any account you want under Settings >> Chart of Accounts. Discuss with your accountant and categorize as makes sense. Many businesses match their expense accounts to reporting categories on tax filing forms.