DESKTOP EDITION CLOUD EDITION SERVER EDITION GUIDES FORUM

Selling inventory item increases expenses too?


#1

Why inventory item when entered in sales invoice is shown as a purchases of inventory item in General ledger transaction report?


#2

That’s how inventory works. When you purchase inventory item, you will increase your Inventory on hand balance. When you sell inventory item, you will increase your sales balance.

But that’s not the whole story. When you sell inventory item, Inventory on hand account balance needs to be decreased by the purchase cost of the sold item and this cost is automatically converted into expense. This is fundamental requirement for the proper calculation of things like profit margin and cost of goods sold.

For example, let’s say you purchase inventory item for $200. As long as you have it, it is your asset.

Then, let’s say, you sell this $200 item for $1,000 to your customer. Your income is $1,000 but your $200 asset is automatically converted to expense. It’s no longer an asset, because it’s now sold. So your net profit is $800.


#3

I’m doing beekeeping, my products do not need to be purchased. The bees are creating honey more or less out of nothing, new colonies are created just be deviding old ones etc.

So this comes to the detail, that I have a purchase value of 0 and a sales value of 5, which leads to a margin of 100 %. I have expenses in several material (hives, glasses, tools …) but this is an asset thing and has nothing to do with the inventory items.

I tried several ways to make the software understanding, that there is no need to purchase my inventory items.

  • setting purchase value to 0 and sales value to 5 and adding inventory via journal entry (f.ex. 120 glasses with value of 600), this led to purchase costs in the exact hight of my sales amount incl. GST
  • adding a purchase invoice, receiving 120 glasses with value of 600, this was transferring the inventory to stock after setting the invoice as being paid, but now I was missing 600 at my bank account
  • setting purchase value to 0 and sales value to 5 and adding inventory via start balance (f.ex. 120 glasses with value of 600), this is probably totally wrong and led to purchase costs in the exact hight of my sales amount incl. GST as well

The only thing that worked was:

  • setting purchase value to 0 and sales value to 5 and adding inventory via journal entry (f.ex. 120 glasses with value of 600) and correcting the purchase fault by adding negative expenses to an expenses account named “purchase inventory items - correction”, this balances the purchase costs in the exact hight of my sales amount incl. GST, but needs to be adjusted with every sales action

Now the questions:

  • is there a way with a little bit more of comfort?
  • is the purchase value of inventory items taken into consideration in any way?

Thank you. All other things in the software are fitting my requirements quite great.


#4

What you are basically doing is manufacturing. So rather than purchasing inventory items, you are manufacturing them. Therefore you shouldn’t have any purchase invoices that are purchasing inventory items. So the first step would be to delete all purchase invoices.

Now, even though bees are creating honey out of nothing, there is still direct cost associated in producing jar of honey (hives, glasses, disposable tools). I assume, you have expense categories where you allocate expenses when you purchase hives, glasses, tools etc. right?

Can you determine direct cost per expense category to produce single jar of honey? Once you determine it, everytime you produce one or more jars of honey, you can record this as journal entry where you debit Inventory on hand account and credit various expense accounts. I can give you the exact journal entry if you tell me your direct costs per expense category associated to produce jar of honey.

In future, there is going to be special manufacturing module which will allow you to record creation of product in more user-friendly way. For now, it can be done through journal entries.


#5

Thank you for the fast response

Unfourtunately I can’t assign direct costs to a single jar of honey, it’s because some peoble give the empty glasses back to me for refilling.
The illustrate the problem, I’ve uploaded the *.manager backup file to a webspace:
beebear.manager - example data

My basic question is, how can i prevent that the amount of sold inventory is showing up under income and under expenses on the summary page. Setting up the purchase price to 0,00 didn’t help so far. Is this information used somewhere?

Regards, Matthias