Stock integration to the nominal ledger

Summary

This article explains how stock movements can integrate with the Nominal Ledger.

More Information

There are three methods for the stock to integrate into the Nominal Ledger. Method One is our preferred method and is issued as standard with all new systems.

Method One - Automatic Cost of Sales (preferred)

This method works by the system posting journal entries into the accounts seamlessly for any movement of a stock item.

There are five standard nominal codes involved in the journals, but these may vary depending on your business and how your Nominal Ledger is configured.

• Z920 Stock Accruals (also known as "Goods Received - Not Invoiced" or "GRNI")
• Z921 Cost of Sales
• Z922 Stock Value
• Z923 Stock Adjustments
• 19703 Work in Progress

Example Postings

For this example, the item of stock has a cost value of 100.00.

Booking In Stock

When you book an item into stock, the system makes the following entry into the Nominal Ledger.

Z920 Stock Accruals  -100.00 CR
Z922 Stock Value      100.00 DB

The above has the effect that the Stock Value is increased by £100.00 and the Stock Accruals have been reduced because we have not yet received the invoice and we need to show that we owe the £100.00.

Purchase Invoice Posting

When you receive the purchase invoice for the stock item and post it into the Purchase Ledger, you can allocate it to a single Purchase Centre. The default would be '200 - Stock Purchases', although you may have your own code. The centre that you use should be linked to 'Z920 Stock Accruals'. The following entry will then be made in the Nominal Ledger, as and when you run the " Nominal Ledger Update" from the Purchase Ledger.

Z920 Stock Accruals    100.00 DB
Z999 Vat Control        17.50 DR
Z993 Purchase Control -117.50 CB

The above will clear the Z920 Stock Accruals and creates a creditor for £117.50 which you owe to the supplier for the purchase, and posts the '£17.50' to your Vat Control.

The Stock Accruals code is cleared as long as the price that stock has been booked in agrees to the price that you have actually been invoiced and have subsequently posted into the Stock Accruals.

Counter Sales

When the item is invoiced, it is booked out of stock and the system makes the following entry into the Nominal Ledger.

Z922 Stock Value     -100.00 CR
Z921 Cost of Sales    100.00 DB

The above decreases the Stock Value at the latest FIFO cost price (100.00) and posts the other side of the journal to Cost of Sales on the Profit and Loss.

The cost of sale code on the profit and loss defaults to Z921. However each sales centre has an optional cost of sale code so that you can post the cost of sale to a nominal code that relates to the sale. This gives us a much more comprehensive set of management accounts.

For example,

              Sales Centre : 100

               Description : Parts Sales

              Revenue Type :

Allocate to Nominal Centre : 11100  Parts Sales
       Nominal Centre Type : Profit & Loss - Sales Item

      Cost of Sales Centre : 11200  Parts COS
   Work in Progress Centre :

Other Movements

1. If a stock item is booked onto a workshop job card, this is classed as Work In Progress and the system accounts for this type of movement with the following entry into the accounts,

Z922  Stock Value      -100.00 CR
19703 Work In Progress  100.00 DB

When the job card is invoiced, the stock will then be sold using the latest FIFO cost and the system will post the following journal,

19703 Work In Progress -100.00 CR
Z921  Cost of Sales     100.00 DB

2. If an item has been adjusted, the system accounts for this type of movement with the following entry into the accounts,

Z922 Stock Value       -100.00 CR   If the adjustment is negative
Z923 Stock Adjustments  100.00 DB   You have decreased the stock.

Z922 Stock Value        100.00 DB   If the adjustment is positive
Z923 Stock Adjustments -100.00 CR   You have increased the stock.

This is the preferred method since the postings to the nominal happen without any intervention and seamlessly. You should be aware that variance in your stock value can arise if the goods are received into stock at one price and then the price is corrected when the invoice is checked against the order. If the item or items in question have been sold, the stock value is adjusted for the change in price, hence the cost at which the items have been sold and the price that they came into stock at are different, hence the variance. We would advise that the prices are adjusted in any event, and a correcting journal is posted manually once a month to allow for this variance.

Method Two

This method uses a variety of the "Opening Stock plus Purchases Less Closing Stock" approach to give the Cost of Sales figure. It works on the basis that the purchase centre(s) link to Profit and Loss codes, and we will then need to adjust the purchases by the value of the stock movement to get a Cost Of Sales figure. To get the stock movement value at cost:

• Run the "Stock Valuation at a Date" report from the Stock Control Report Generator.
• Compare the result of this to the previous month's valuation report and post the difference so that the balance sheet stock account shows the same figure as the valuation you have just run.
• The other side of the entry should go to a Stock Movement code (Profit and Loss COS).

Method Three

This method is a variation on Method One, but done manually. It works on the basis that the purchase centre(s) link to the Balance Sheet Stock Value account, and that we are going to journal the Cost of Sales value manually back to the Profit & Loss.

• Run the "Invoiced Stock by Nominal Code" report. This will show the turnover through each sales nominal code, and provide the cost value alongside. If this report is not in your system it can be downloaded from here and help on importing reports can be found on This Page.
• You will need to run the nominal update part of your month end procedure at this point. This will give you the turnover figure for each sales nominal code.
• Compare the reported value in the nominal code with the actual figure. They should be the same value. In the unlikely event that they are different, decide whether the difference is significant and investigate if it is.
• Having validated the turnover figure, journal the Cost of Sales figure as follows,

Z922 Stock Value     - <Cost Of Sales> CR
Z921 Cost of Sales     <Cost Of Sales> DB

This should leave you with the correct stock value on the balance sheet, and an auditable Cost Of Sales figure.

See also

• Unit integration to nominal ledger
• How do I import a report generator template?

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Keywords AND Misspellings

stock nominal ledger, stock, integration, inter, month end, stock cost of sales