I am not surely exactly how best to address this issue, so I will explain the problem.
I was looking at summary page and I noticed that my Inventory Sales seemed to be quite low compared to my Inventory Cost so I went to Inventory Profit Margin to see if I had somehow paid more for a product than I sold it or something.
However, the inventory profit margin showed roughly the correct amount of profit that I was expecting to see.
It turned out that I had sold some laptops as in invoiced the client before the 31st March as the client needed to spend the money before the 31st March, however the laptops would not be available for delivery until mid April. So I invoiced the client (effectively in my last accounting year) and then bought the laptops in April. This is obviously rather unusual to receive the money first and then to buy the goods, but the situation could equally have been the other way around where I had bought the goods last financial year and invoiced it this financial year.
Anyway, the point is that looking at the summary page I could see that the figures did not look right in terms of profit (although the figures are actually correct). I think the problem is with the Inventory profit Margin Report. It showed the profit margin that I made on those laptops despite the fact that the profit and cost occurred in different financial years.
It was only by comparing the Inventory Profit Margin report and the Summary Inventory Sales export line by line that I managed to work out where the supposed profit had vanished to on the summary page. In my case it was a simple issue to pick up as I don’t have hundreds of transactions. In a bigger business with a high transaction rate, this would have been impossible.
Perhaps the inventory profit margin report and indeed other reports should highlight transactions that occurred in the previous financial year as there has got to be a better way to work out something like this other than going through the report and summary inventory sales line by line? It would make it far easier to understand the figures on the summary page which only show the current year?
I think you are misunderstanding Inventory - cost. The value of inventory exists as an asset in Inventory on hand until it is sold. At that point, the price goes to Inventory - sales and the cost, based on average cost as of that moment, goes to Inventory - cost. If you are selling inventory you don’t yet own, you should expect funky numbers. If you generated an Inventory Margin Report for a longer time period spanning all the transactions, it could work out differently.
In other words, you’ve said your Summary numbers are correct. The difference with the Inventory Profit Margin report is a function of the dates you happened to choose. Similar differences in the other direction might occur if you purchased and paid for inventory across the time boundary.
Being cash basis, if you received the payment prior to Mar 31, then the sales would have been in last year, hence you would have lower sales in this year verse’s the inventory purchased in this year (but sold the previous year).
Yes @Tut and @Brucanna, you are both correct. The issue is not that I don’t understand why the figures are what they are. I am aware in Cash Accounting, I am not seeing the profit this year on the summary page because I made the profit last year! I also understand that the different dates on reports etc will affect the outcome.
I think that what I am trying to say is this. Technically all the figures are correct and I understand why the figures are what they are. But that does not help me to identify why my profit margin this year was lower than I knew it actually was because of the issue with the cost and sale occuring in different financial years…
So I was trying to find a simple way to track where the missing profit had gone on the summary page. Hence my suggestion that the reports could have some way of showing figures from a different financial year especially given that my report was from the 1st April 2017 to today’s date. However, that report showed the sale of the laptops despite the fact that the sale tecnically took place before the 1st April.
I am not too worried about it as in the main, I generall buy and sell in the same financial year. That particular example was an unusual circumstance.
What you have highlighted, @dalacor, is the exact reason accrual basis accounting is preferred by accountants for most situations. It gives a more accurate picture of both position and performance. Even if you normally use cash basis accounting, you can toggle back and forth and create reports in both.
Inventory Profit Margin does not allow me to select cash or accrual. My summary page is already set to accrual even though I use Cash Based Accounting. I set it to accrual because it shows more information than the Cash Based Accounting View does.
Anyway, its not a major problem for me. Its not a suggestion that is likely to occur ever again for me as ganerally I try very hard to ensure that everything in terms of purchase/sales is in the same year and for the most part it works well.
