Stock integration to the nominal ledger
Contents
Details
There are three methods for the stock to integrate into the nominal ledger of which Method One is the preferred and is issued as standard with all new installations.
Method One - Automatic Cost of Sales (preferred)
This method works by the system posting journal entries into the accounts automatically for the whole process of an item of stock being booked into stock, right through to an item that is booked into stock, booked onto a job card and then subsequently sold.
The process
There are five standard nominal centres that are used for the process.
- Z920 Stock Accruals
- Z921 Cost of Sales
- Z922 Stock Value
- Z923 Stock Adjustments
- 19703 Work in Progress
These may vary depending on how your system is set up.
For this example, the item of stock has a cost value of 100.00
1. When the item is booked 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 other side of the journal has accrued for the purchase by crediting the Stock Accruals because we have not yet received the invoice.
2. When the item is invoiced, 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 the cost of sale on the profit and loss.
 | The cost of sale centre on the profit and loss defaults to Z921. However each sales centre has an optional cost of sale centre that you can set-up which allows you to post cost of sale to a more appropriate centre 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 :
3. When the purchase invoice arrives, this is posted into purchase ledger to centre 200, Stock Purchases. This centre updates Z920 Stock Accruals. The following entry is made in the nominal ledger,
Z920 Stock Accruals 100.00 DB Z999 Vat Control 17.50 DR Z993 Purchase Control -117.50 CB
The above clears the Z920 Stock Accruals, completing the process and creates a creditor for £117.50, which is the cost and VAT owed for the purchase.
| The stock accruals 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. |
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 works on the basis that the purchase centre(s) link to Profit and Loss codes, therefore we are adjusting the purchases by the value of the stock movement to get a Cost Of Sales figure.
- 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 works on the basis that the purchase centre(s) link to the Balance Sheet stock account, and that we are going to journal the Cost of Sales value 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.
- 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 audit-able Cost Of Sales figure.
