DESKTOP EDITION CLOUD EDITION SERVER EDITION GUIDES FORUM

Sales Invoice also Recorded as Purchase


#1

Having a problem with sales invoices resulting also being recorded as purchases.

We were sitting down working on the latest BAS and ran the Tax Transaction Report for October - December 2014. The Tax Transaction Report includes (some of) our sales invoices as purchases as well as sales.

I’m not sure how this can arise. By our reckoning the actual figure is about $125 different to what is generated by the report.

Can you offer any advice?


#2

Are you talking about Inventory items? I do find the default ‘Purchases’ account name a little confusing for what is really the “Cost of Goods Sold” account (I updated the account name).

When you buy inventory items the purchase will:
Dr Inventory and Cr Accounts Payable (or cash).

When you sell inventory you will get two entries:
Sales: Dr Receivables (or cash) / Cr Sales Revenue
COGS: Dr “Puchases” / Cr Inventory

Are you just seeing the above matching of the (inventory purchase) expense to revenue (which makes sense) or something else going on?


#3

That’s a thought.

All our sales are for inventory items, but only some of these sales have generated the ‘purchase’ amounts. I guess if it were consistent then I could understand.

I will have another look to see if I can pick up an exception to the pattern.

Helpful suggestion. Still a little puzzled as per above but perhaps more examination will reveal something.


#4

I have encountered the same problem. I create a Sales Invoice allocated to group Sales of Inventory Items, which should be allocated to Income, yet it gets stored under Purchase öf Inventory Items as Expense. ?
The problem seems to be intermittend, not all of my sales have gone in there…?

Hope this may help.

Claude


#5

Has this problem request been looked at yet…? I note from this Forum that there has been no further info/action/feedback supplied from the Manager Developers…?

I have just tried the Manager on a clean Database and New Business as TEST, and again, I enter an Invoice as a Cash Transaction “Received in Petty Cash” yet the System still allocates the Purchase Price to the “Less Expenses” - “Purchase of Inventory Items”…?
This was a Sale Transaction of a Product still sitting in my Stock Holding. Product was Purchased over a week ago and the Inventory Stock Holding was updated at the time.This Sale should be allocated to Income and not Purchase of Inventory as I see it…?


#6

If on accrual based accounting the cost of goods sold should be expensed to purchase of inventory when you sell the stock.

I.e purchase : dr inventory / cr cash or ap

Sale:
Dr receivables / cr revenue at sales price
Dr purchase of inventory / cr inventory

So if things are working properly you should get an expense to purchase of inventory at time of sale and income to sale of inventory.


#7

Hi,

Thanks for the response Alasdair,

As I see it, when one Purchases Stock from your supplier, then the Purchase of Inventory as an Expense should be populated under “Expenses” as an Accumulating Total in the Business “Summary” View.
I don’t agree that once the Business has purchased Stock, (which is an Expense) , the Sale of a Product is recorded an Expense as well, but should be recorded and totals accumulated as an Income of Inventory Sales…for the Business…?

Unless I have something incorrectly configured, this is what Manager is doing which does not make too much sense to me…?

regards


#8

The accounting principles in most countries do not consider the purchase of inventory an expense. You are buying an asset which has value to you, so when purchased you Replace one asset (cash) with another (inventory). Accordingly, this value will appear under Assets on the summary not expense.

When you sell that inventory you must recognize the profit (or loss) on that sale. This is done, at the time of sale by expending the purchase cost of the inventory Dr cost of goods sold (purchase of inventory) / Cr Inventory ( to remove asset you no longer have). At the same time you get to recognize the revenue for the sale price. Dr cash (or receivables) / Cr revenue.

Anyway, that’s what manager is doing, following what is very standard inventory accounting for most of us.

I still think this is what you are seeing so either you may need to clarify with your accountant whether this is acceptable in your country. If your country has different accounting rules it may be that manager does not support those local rules .

I hope that was helpful.


#9

Hi Alisdair, Yes Thank you for the response…!
No It is not that we have a “ruling” as such in South Africa, it is just what seems to be making Logical Flow in the Operation.

By this I mean, I will Purchase Stock from my Supplier, lets say 10 x Items @ R100 / Item.
This I believe should now be recorded as Purchase of Stock as an Expense of R1000.
I now sell this Product at R150 / Item. The next day I sell 2 x Items. Now I believe these Sales of Inventory Items should be recorded as Income @ R150 x 2 = R300 Gross Profit is R300 for these 2 x Sales and Net Profit will now be R100.

The initial Purchases of the Products should already be recorded as the Expense, and the Sales of the Products the Income…

Just my way of looking at it.

By the way, I am using the System for my Small Business and overall opinion is… I Love It !

I just have to be very carefully when looking at the SUMMARY display, to note what are actual Expenses and Income…?


#10

Hi @Claude hope i can help.
When you purchase items on the purchase invoice you allocate them to the “Inventory on hand” account which is an “asset” account, not an “expence” account.

Think of Inventory items being a deferred expence as you cannot have an item that is an expense and asset at the same time.

When you sell your items on the sales invoice you select “sales of inventory items” account then select the item.
That will then expense that asset which shows on the summery screen under Less expenses section as “Purchase of inventory items”

What i have done to avoid confusion is to rename the account “Purchase of inventory items” to “Cost of goods sold” you can do this by clicking settings, select Chart of accounts then edit the account.

When you sell items they are recorded as income, on the summery screen under Income you will see “Sales of inventory items” if you click on the figure to the right you will see a list of items you have sold, the price you sold it and who you sold it to.

Also on the summery screen if you click on the figure to the right of the Purchase of inventory items (Cost of goods sold) you will see a list of all items you have sold, the price it cost you and who you sold it to.

Hope this helps.


#11

Some of the recent comments may hold the key to this question. However, I remain puzzled as to why ‘some’ transactions have resulted in the situation I described and not others.

As I understand it in Australia when we do our BAS (to pay/be compensated for GST we collect/pay out) smaller enterprises can elect to operate on a cash basis, while larger ones have to operate under and accruals basis. We fall under cash - so when we make a sale that transaction has nil affect until we actually receive payment. Many of our sales are to institutions which we allow 30 days to pay, but typically they take longer. Of course there are other affects, but the most obvious one. most of the recent discussion probably falls under that heading.

As I said from the outset, I don’t comprehend the logic of only some of these transactions resulting in this situation. I would have expected all or nothing.


#12

@Claude. I’ll make one last pitch using your example:

Hi Alisdair, Yes Thank you for the response…!

No It is not that we have a “ruling” as such in South Africa, it is
just what seems to be making Logical Flow in the Operation.

By this I mean, I will Purchase Stock from my
Supplier, lets say 10 x Items @ R100 / Item.

This I believe should now be recorded as Purchase of Stock as an Expense of
R1000.

No, at this point the purchase is recorded as an asset - Inventory is considered an asset.

Dr Inventory R1000 (10xR100) [ASSET] /
Cr Accounts payable to Supplier(10xR100) [LIABILITY]

Again, nothing goes to expense here you bought an asset (something you
can sell) you did not incur an expense at this time.

I now sell this Product at R150 / Item. The next day
I sell 2 x Items. Now I believe these Sales of Inventory Items should be
recorded as Income @ R150 x 2 = R300 Gross Profit is R300 for these 2 x Sales
and Net Profit will now be R100.

This is the point at which you dispose of, i.e. sell your asset and make
some profit. The sale triggers two accounting entries:

The Revenue:

Dr Accounts Receivable from customer R300 (2xR150) [ASSET] /
Cr Sale of Inventory Items (Revenue) R300 (2xR150) [REVENUE]

The disposal of the asset:

Dr Purchase of Inventory items (Cost of Goods Sold) R200 (2xR100) [EXPENSE]/
Cr Inventory R200 (2xR100) [REDUCE THE ASSET]

After the above your balance sheet and income statement would be:

Balance Sheet:                                  

Assets                      Liabilities 
- Receivables        300    - Accounts Payable   1,000
- Inventory          800    - Retained Earnings    100
                   1,100                         1,100

Profit and Loss/Income Statement:

- Sale of Inventory Items                                300
- Less: Cost of Goods Sold  ("Purchase of Inventory")    200  
- Net Profit                                             100

(the profit rolls into retained earnings on the balance sheet)

Proper accounting requires matching the timing of the revenue and cost of goods sold for the inventory sold so that your income statement reflects the net profit (revenue less cost of goods sold) at the time of the sale. The key point here again is that inventory is considered an asset so when you buy it you have bought an asset not incurred an expense.

Had the accounting flowed in the manner you suggest you would have incurred on day one and expense of R1000 (10@R100) and on day 2 income of R300 (2@R300), i.e. a net loss of R700 at that point. That is not the case as you stated above your profit is R100. It is by recording inventory as an ASSET not expense and then creating the revenue and cost of goods sold (expense) entries together at the time of sale for the quantity sold that you end up reflecting the correct profit R100 on day 2.

I can’t really add anything further to this topic other than to say that I am using manager for inventory and so far it’s been doing exactly as I described above and that is exactly what I expect based upon standard inventory accounting practices.


#13

As I often do, I recommend those who have questions about accounting procedures read applicable material from accountingcoach.com. In this case, have a look at:

Disclaimer: I have no connection whatsoever to accountingcoach.com. But the man behind the site, Harold Averkamp, CPA, MBA, has a real talent for explaining things. Good luck!


#14

Morning Guys,

All points and factors noted.
Thank you @alasdair, @Ian1, @Tut for taking the time and effort to respond to my enquiry! Proves that this forum works!

I have gone on Ian’s recommendation and yes, this does work better for me.

Sorry to bombard you @alasdair, you do have patience and thanks for your explanations.

Continuing to use the System, as it is the best free one I have come across, even comparing to Accounting Systems one can buy in the shops where I have wasted my money before…!!! Good work to all Developers involved, Thanks guys!