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Inventory cost adjustment

Software: MoneyWorks accounting software

The cost of sales of an inventory item realised when the product sold, whereas the non-inventory item realised upon purchase.

The purchase invoice debit the cost of sales account and credit accounts payable when a purchase invoice of the non-inventory item has recorded. Non-inventory item used in drop-shipping businesses, back-to-back, or project kind of order, which you do not track the inventory as the purchase made is fulfilling a specific customer order.

Inventory item is different, you purchase in bulk and sell it slowly to various customers. It debits the inventory assets (in Balance Sheet) and credit accounts payable account when purchase invoice has recorded. It debits the cost of sales and credit inventory assets account when sold.

The complexity comes in when you recorded an item as a non-inventory, sold it to a specific customer, being rejected and returned by the customer, and you converted it to stock (inventory assets).

Assuming you purchase a non-inventory item Ni-101 at $1000 for a customer, It debits the Cost of Sales and credit Accounts Payable account at $1000.

The customer returns the non-inventory item Ni-101 and exchange for an inventory item S-200, which has the same selling price and cost as Ni-101 on the following month.

You decided to stock up Ni-101 by creating a new product code Ni-101S (inventory item) since the original product, Ni-101, is a non-inventory item.

Method 1:

You can create a sales invoice for S-200 to reduce the stock on hand at $0 amount and a negative quantity of Ni-101S with $0 to add the stock back. This invoice:

Debit Accounts Receivable $0
Credit Sales (S-200) $0
Debit Cost of Sales (S-200) $1000
Credit Inventory Assets (S-200) $1000

Debit Sales (Ni-101S) $0
Credit Accounts Receivable $0
Debit Inventory Asset (Ni-101S) $0
Credit Cost of Sales (Ni-101S) $0

There is no movement of inventory asset value or cost of sales when Ni-101S adds to the stock on hand. The cost of sales has already realised earlier when the purchase invoice of Ni-101 has recorded.

The margin of Ni-101S will be 100% if the item sold.

This method shows a conversion of non-inventory to an inventory item, focus on the stock on hand but not the realisation of the cost of sales and stock valuation. For example, the cost of sales realisation of Ni-101 (non-inventory) could be in period one, whereas the sales or Ni-101S (inventory item) could be in period three.

However, if you prefer to realise the cost of sold of item Ni-101S upon item sold, then you may consider method 2.

Method 2:

This method requires using a purchase invoice to adjust the item cost of Ni-101S. First, you create a product (only checked the checkbox for ‘We Buy This’), name it as COST_ADJ (or something which you preferred) and link the cost of sales to the expense account field.

Cost adjustment product

Then, create a purchase invoice (you may create a creditor and code it as COST_ADJ) with Ni-101S in line one and COST_ADJ in line two. Ni-101S with quantity and value of $1000, this is to stock in and update the product cost. Whereas COST_ADJ is a negative quantity and value to reduce the cost of sales. The purchase invoice:

Debit Inventory Asset (Ni-101S) $1000
Credit Cost of Sales (COST_ADJ) $1000
Credit Accounts Payable $0

Adjust product cost

Next, create a sales invoice to the customer for inventory item S-200 with $0 selling price to indicate an item sold to the customer. This sales invoice:

Debit Accounts Receivable $0
Credit Sales $0
Debit Cost of Sales (S-200) $1000
Credit Inventory Asset (S-200) $1000

Sales invoice for goods exchange

In future, MoneyWorks will debit the cost of sales and credit inventory asset $1000 when item Ni-101S sold.

Method 2 is a better solution as it gives an accurate stock valuation.

Join my training to understand how to utilise MoneyWorks for your business or sign up a free demo to see how MoneyWorks works for your business finance.

How to update the address and company logo in MoneyWorks accounting software?

You can change the company address or delivery address in MoneyWorks accounting system when you have moved to a new location, or update the company logo when there is a change. Go to the Company Details from the Show menu to change the addresses, and click the Logo button from the Company Details window to change the logo

Company Details

From the Company Logo window, click the Clear button to remove the old logo from MoneyWorks, and then click the import button to import the new logo (or drag and drop the new logo into the space given).

Change company logo

You may require to amend the existing template if the size of the new company logo is different from previous.

You can insert additional images such as ISO certification logo or advertisement banner via the template designer. Once completed, sign and upload the amended template to the MoneyWorks Datacentre server.

Contact your MoneyWorks consultant if you are having a problem adjusting the template.

Non-Current Liabilities account

Non-Current Liabilities are financial obligations which the repayment is not within the fiscal year. It includes long-term loan, deferred tax liabilities, the bond payable, etc. (Please check with your accountant on the account classification). Non-current liabilities are also known as Long-term liabilities or term liabilities, depending on the reporting standard which the accounting software has adopted. For example, Intuit QuickBooks accounting software uses long-term liabilities, whereas MoneyWorks uses term liabilities.

Term Liabilities

MoneyWorks has a built-in report writer which allows to create or amend the report. Assuming you want to change the Balance Sheet’s Term Liabilities section header to Non-Current Liability, you open the Balance Sheet report in the Report Designer, scroll to the Term Liabilities section header and amend it.

Amend report.png

Save the amended report into the Custom Plug-ins folder, and then sign (to grant access) and upload it to the MoneyWorks Datacentre server.

Balance Sheet.png

You may not have the necessary programming skill to rewrite the formula and codes, but changing the report label shouldn’t be too difficult. Alternatively, you may export the report to a spreadsheet and amend it.

Consult a MoneyWorks consultant in your area if you are having a problem editing the report.

Sign up a free demo if you like to find out more about how MoneyWorks helps in managing your business finance.