Simplified drilling-down into inventory cost account

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The latest version (25.1.22) is making custom expense accounts for inventory items an obsolete feature and making drilling-down into built-in inventory cost accounts more intuitive.

Enable/disable support for custom expense accounts on inventory items

Custom cost of goods sold accounts are still enabled for existing businesses for backwards compatibility. However, the recommended approach is to stick to a singular CoGS account. If you want to see segmentation of CoGS, there could be another report for that.

To toggle support for custom cost of goods sold accounts, go to Obsolete Features under the Settings tab.

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Then click Custom Expense Account.

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Here, you can check or uncheck the Enabled checkbox.

Making drilling-down into built-in inventory cost accounts more intuitive

When you click on the Inventory - cost account figure on your profit & loss statement, you will see how the figure has been calculated using the following formula:

Cost of goods sold = Opening inventory + Purchases - Closing inventory

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  • Clicking on opening inventory will give you a list of your inventory items at the beginning of the period. Each inventory item has a Qty owned and Unit cost column. Multiplying Qty owned by Unit cost is Total cost, and the sum of the Total cost column is your opening inventory.

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  • Clicking on Purchases figure gives you a list of all purchases of your inventory for the period. This is where you will see your payments, purchase invoices, and other transactions typically acquring new inventory. You will not see here Inventory Write-offs because they are decreasing Qty owned within Closing inventory figure.

  • Clicking on Closing inventory is the same as clicking on Opening inventory, except you will get figures for your inventory items at the end of the period.

  • If you made direct entries into the Inventory - cost account, then there will be one more line shown named Adjustments.

  • If you use custom expense accounts on inventory items, you will see more transactions redirecting figures from your default Inventory - cost account to your custom expense accounts. I suggest you disable custom expense accounts. If you want to split the Inventory - cost account, there will need to be another report for that.

Iā€™m hoping this update will give clarity on how the Inventory - cost balance on the profit & loss statement is calculated.

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@lubos, Kindly make me understand. I have gone through this new development and I see what you trying to do. But what I dont get is how production orders come into play. How are prodction orders affecting COGS if all cost is drawn direct from purchases without respecting the production stages. Are production order costs become irrelevant?

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Non-inventory costs within Production Orders will appear under Purchases. Such a production order will Credit whatever non-inventory cost account you have selected and Debit purchases under Inventory - cost.

If production order has no non-inventory costs, then production order is just decreasing Qty owned of input items and increasing Qty owned for output item. There is no general ledger transaction that debits or credits anything.

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In the image above, I did some write offs and that what you see under the line ā€˜damagesā€™. If write offs are reducing the quantity owned, why are damages ā€œwrite offsā€ still appearing as a cost or expense if it has already been taken care of under COGS.

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@Mule1 regarding inventory write-offs, if you check Allocation checkbox on write-off, then write-off will be general ledger transaction with debit/credit entries.

If you donā€™t check Allocation checkbox, then inventory write-off will simply reduce Qty owned and will not be general ledger transaction.

Iā€™m planning to remove Allocation checkbox eventually. So all inventory write-offs will simply reduce Qty owned without being general ledger entries.

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This may decreasing advantage of manager that user directed to certain account.

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@ejjaadiargo There is definitely a report missing that could segment or split the cost of goods sales in various ways. Such a report could provide you with those calculations (including the value of those write-offs). If you want to show those write-offs directly on the profit and loss statement, you could use the figure from that report and create a manual journal entry. However, I suspect that for most businesses, a supplementary report containing that information would be sufficient.

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A post was merged into an existing topic: Unit costs (problem)

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Iā€™m not sure this aligns with financial accounting rules or is a good idea. A write-off is clearly a transaction meant to reflect the depletion of assets, so how can a legitimate transaction that impacts the financial position of a business and has tax implications not be reflected in the general ledger? What are we trading this for? What new measure ensures the financial position of a business remains accurate after such an action, which will be excluded from the general ledger, is taken?

Also, I have not commented on the decision to make the custom expense account obsolete because I am still waiting for the promised report intended to address this issue. However, if this lose of feature does not facilitate progress in more important areas, such as ensuring accurate figures in reports, then it is essentially a downgrade.

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good day,
dear @lubos, write-offs itā€™s general ledger transaction asper financial accounting rules,
you canā€™t use it to reduce only qty please have advice from an experienced accountant before planning to remove such things like that

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@lubos In the P&L statement when division is not chosen the cost of goods will show and if division is selected the cost of goods will disappear! Please look into that area for we that use division.

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Hi Lubos

even after enabling the custom expense account, Manager is not updating those custom expense accounts, all the previous allocations are ( Zero ) now, only the Account " Inventory - Cost " is reflected by transactions now, any way to get the old feature of the custom expense account again

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@lubos same issue here, the custom expense accounts are enabled but still all the cost is still not allocated to the existing custom accounts!

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We have different product lines, we are keeping track of their revenues and expenses separately, this morning found that all expenses are being allocated to one single cost of sales account. I tried enabling the custom expense account but still its not fixed.

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You confirmed my suspicions about a mix-up between the periodic inventory system and the perpetual inventory system.

I am becoming very concerned about this update

Please we need an urgent corrections because this will lead to a decline in the level of the manager and even lead to disasters.

Please keep our confidence in the manager

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We need to return things to the way they were. There were no errors in terms of income and balance sheet.

If you insist on this disaster, we have the right to request that you return to the previous update and give us a period of time to search for another system.

But now we are in an unenviable position. Personally, I have a problem that I donā€™t know the solution to.

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Dear Lupus, Greetings:

I hope that you will read this as advice to modify the problems and develop this system. I speak as an accounting expert and designer of accounting systems. Although I am not a programmer, I have helped many companies in the past to develop their financial and accounting systems. I have been using this system for about five years, from the desktop edition to the cloud edition. Most importantly, I am writing this explanation to you because I love this system, and I would like to continue using it.

You are not obligated to implement my words, as this system is yours and I own the decision to continue with it or not.

My speech will focus on 3 important points, each of which I will list separately:

1- The problem of journal entries

2- The problem of divisions

3- The problem of inventory

I also suggested three suggestions previously and I do not want to delve into them now and I want to remind them because there are many systems that want to develop them.

1- Stick to a singular COGS account (Wrong decision)

2- Managing accounts of receivables and payables accounts

3- Sales commissions

I apologize in advance for the length,

NO 1 - The problem of journal entries:

It is noted that there is a defect in the movement of transactions, and this is clear from the weakness of the journal entry, and I will give an example of this. When recording a sale that is financially affected by the costumer and sales, this operation is posted to the general ledger and transferred to the journal entry, and this is wrong because the financial operation is different from the accounting operation, and it is supposed to be transferred to the journal entry and then transferred to the general ledger (i.e. recording the sale and then to the journal entry and then to the ledger).

Because the impact of the sale operation as a financial operation is affected by the costumer and sales, and its accounting impact is on the costumer, sales, COGS and inventory.

This will help to:

1- Ensure that each operation is transferred correctly.

2- Ensure that any new idea or any modification made by you to the system can be studied and analyzed correctly before implementing it.

3- It helps in the audit process for users.

NO 2 - The problem of divisions

There are two types of division (investment center or branch or unit center and profit center) The divisions that were operating in the system were profit centers and were developed to work as an investment center. This is an excellent development, but profit centers need to be added to each investment center. Why?

First, when preparing an investment center, there should be no confusion between an investment center as branches owned by a head office and subsidiary and holding companies.

For those who want to work between a holding company and a subsidiary company, they must include business for each company separately because each company has a legal personality, and each company has its own accounts.

When talking about investment centers, the division must be selected during the process of recording operations. The supplier should not be allocated to an investment center. For example, when recording a purchase, the supplier is chosen and the investment center is chosen because this supplier work with other divisions too. The same applies to inventory. When choosing the supplier during the purchase process, the inventory that was purchased will be chosen for the chosen investment center. The important thing that must be linked to the investment center is the location of the inventory, not the inventory items. Thus, the investment center is linked to the inventory items through the inventory location. Taking into account that the process of transferring inventory between locations will become accounting operations and not just quantities to show the inventory between investment centers in the balance sheet in the correct form and what corresponds to the process of credit notes and debit notes between investment centers (and this is one of the reasons for the necessity of developing the journal entry as we mentioned earlier).

And all operations related to income and expense accounts are related to profit centers (knowing that each investment center has its own profit centers), as an example for clarification only, an investment center is a hotel followed by a profit center such as a rooms department and a food and beverage department and a second investment center such as a clinic followed by a dental department and a laboratory department.

Now when record a purchase, the supplier and investment center will be selected as we mentioned earlier, and if there are any expenses in the process, the profit center of its investment center will be selected.

NO 3 - The problem of inventory

There are two methods in inventory (periodic inventory system and continuous inventory system). The periodic inventory system can be entered manually in any system without the need to perform any equations or anything. It is about opening an inventory account and accounts for expenses that are adjusted and closed at the end of the period according to the equation that you mentioned previously.

The system followed by the manager and followed by all systems is the continuous inventory system and it must be continued without including the mentioned equation, which caused problems with the inventory.

I apologize again for the length, and I hope you will go back a little to one of the previous versions because our work has been disrupted, and I hope you will inform us of what will happen so that we can make our appropriate decisions.

We wish everyone success.

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Removing allocation in inventory write offs will limit the functionality of Manager. Inventory write off is used to record many instances of stock reduction apart from sales, such as stock, donation, free samples, internal consumption of stock etc. In such intances one shoul be able to allocate the cost of the stock to the appropriate account in the chart of accounts. Limiting it to just stock reduction without the ability to direct it to the relevant account will be a loss of a very useful and flexible feature.

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@bayeboafo Iā€™ve realized that removing allocation account from inventory write-offs doesnā€™t solve completely the issue I was trying to avoid anyway. Iā€™m taking different approach now and allocation account is part of inventory write-off now and it will stay that way.

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