Problem: Inventory Item “Impressive tester” closing balance for 2020 was 60 units. However, there is an unpaid Purchase invoice of 300 units in 2020 but paid for in 2021. I have entered it as per the guide above.
The final note in the guide states:
Blockquote Note
Carefully consider inventory items on pre-start invoices. If items on a purchase invoice were already received under the prior accounting system, subtract them from starting balances for those inventory items, because the pre-start purchase invoice tells Manager they must be received again.
In this case, I cannot enter a negative inventory starting balance for 2021 to calculate correctly the opening balance. As a workaround, I created a sales invoice in 2020 for 300pcs. My understanding is that as 2020 accounts are already closed (and audited) all I need is 2021 opening balances to match.
Am I correct to do this? Is there a better way of handling this? See screenshots below:
Never enter a fake transaction to try to adjust something that affects you in the present.
You don’t say when you started using Manager. Nor do you say whether the previous accounting system required (or used) goods receipts or their equivalent. You also said the purchase invoice was paid in 2021, but your 2021 balance sheet still shows the outstanding balance in Accounts payable.
So you have not provided enough (consistent) information to give better advice. But understand there are two considerations involved in a situation like this:
How much money did you owe the supplier on the day you started using Manager.
How many units of this inventory item did you have on hand on that date per your old accounting system?
For this purpose, I started using Manager on 1st January 2021. The previous accounting system was Manager itself. It is because of this issue surrounding the incorrect inventories that has led me to reset for 2021.
Apologies for the confusion, Purchase invoice has been paid in 2021 but for the purpose of this example, I did not pass the payment in order to ensure I was on the right track. We can continue on the basis the Purchase invoice has not been paid.
To answer your questions:
The supplier was owed the full amount, i.e. 300 units as per the invoice. Each inventory unit is valued at 1 currency unit to keep the example simple.
60 units on hand opening quantity as at 1st January 2021.
Side note:
I believe the issue is surrounding the removal of the Start Date function in Manager (circa August 2021). This guide you referred is hence outdated: Set starting balances for inventory items | Manager. In fact, I believe the removal of this Start Date function has led to this problem (bug?).
Yes, that Guide is out of date. But since you have been using Manager, you should be familiar with general principles. So, in your new Manager business, this is how I would set things up (using your example):
Create the inventory item, with no starting balance.
Enter the unpaid purchase invoice for 300 units at 1 currency unit each, dated on its actual date in 2020. This establishes the supplier’s Accounts payable balance as 300, which is what you owed on 1/1/2021.
If using Goods Receipts, enter one dated on the date you actually received the goods (presumably in 2020). At this point (or after step 2 if you are not using goods receipts), you have 300 units on hand at an average cost of 1.
Since you apparently already sold 240 units prior to 1/1/2021, you now need to get those units out of inventory. There are several possible ways to do this. I think the simplest is to create an inventory write-off dated the last day of 2020. Post the write-off to whatever account you would normally use for write-offs. This will place the write-off expense prior to 2021, so it will never show on your 2021 Profit and Loss Statement. For purposes of your new business, the write-off is a non-revenue transaction. Keep notes about what you did in case you are questioned during an audit.
Enter a payment for the full 300, posted to Accounts payable > Supplier > Purchase Invoice #. Date this on the day in 2021 you actually paid. At this point, your inventory count and Accounts payable balance are both correct, because the payment posted to Accounts payable does not affect quantities.
Your steps are essentially what I was attempting to get to with the ‘fake’ sales invoice I generated as opposed to the more sensible approach of Write-offs. It seems to have resolved my issue surrounding inventory and fully unpaid purchase invoices.
I have a challenge now with partial unpaid purchase invoices. This is mainly to do with supplier invoices containing cents in their total. An example:
In this scenario, only 3 cents have carried over to 2021 as unpaid. The fault lies with our banking system who round down cheque payments to the nearest 5 cents. The https://www.manager.io/guides/7227 guide states:
Manager uses these pre-start sales invoices to establish starting balances in Accounts receivable. They will not affect profit and loss statements during the current or later financial periods. If an invoice has been partially paid on the day you begin using Manager, only its remaining balance due should be entered.
How do I go about doing this without affecting inventory?
Similar problems come up with partial Customer balances. Should I start a new topic for that or may I highlight those here too as I feel they are all connected?
EDIT I think I found the solution. In the example above, I would simply add an opening credit of 509.55 to the supplier so it automatically deducts from the full invoice and leaves the 3 cents balance at at 2021. Is this a correct approach? EDIT 2 I believe the same applies to Customer partial balances. Opening balance should be the amount they have already paid towards the said sales invoice. Is this a correct approach too?
You are asking general accounting questions for which this forum is not created. You should consult a local accountant or an accounting website/forum such as, e.g., https://www.accountingcoach.com/.
Personally I would create a Rounding differences revenue or expense account to post the rounding differences at the moment of posting a payment or receipt.
If the minimum legal tender in your jurisdiction is 5 cents then your invoices and payments would need to be rounded (up or down as agreed) to a legal tender amount.
Manager does not do this automatically so this would need to be a manual process.
Thank you @Mark, I appreciate the direction and guide.
However, my question is very much related to Manager and is in fact a continuation from my initial problems. As @Tut Tut has been assisting with the problems from the start, I await his feedback or verification) on my line of thought so as to conclude and close this thread.
Thank you too @Patch, we do this for all our sales invoices (individually) and round down to the nearest currency unit (eg. 1 USD) for our own convenience and the fact that cents are not even in physical circulation. However, when receiving an invoice from a supplier, they do not round off which leaves us with an annoying, but manageable, problem of carrying forward unpaid cents into following years.
