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End of Period Inventory Journals

Overview

If you run Vinsight as your master record for inventory, then you can also use our reporting to give you inventory valuations and reports on changes in valuations due to things like sales, purchases and production.

In this document:

 

Ensure Opening Balances Accurate

Firstly for this to work, you must have accurate stock levels (which can be adjusted using a stock take) and an accurate Standard Cost set for each Stock Item.

Read the documentation on Inventory, Valuation and Reporting

Then, from the Accounting Dashboard Quick Reports, you should be able to Run the Stock On Hand Valuation Report at the end of each month.

This should give your stock valuation on the day that you run it, there by giving you your Closing Valuation for the current month, and once adjusted, your Opening Balance for the next month.

Your accounting system’s inventory current asset ledgers should still show the closing balance from the previous month as their opening balance for this month, and possibly already reflecting purchases posted to the asset ledgers.

So we are going to use the basic accounting principle:

Opening Balance – Sales + Purchases (+ Produced) = Closing Balance

 

Steps to Complete End of Period Inventory Journals:

If we assume that your opening balance should be accurate because you did last months adjustments correctly then we can proceed with doing any necessary journals:

1. Adjust for Sales

To adjust for sales we need to run the “Cost of Goods Sold(detailed)” report (Accounting Dashboard->Quick Reports) for the period.

This tells us the amount that we have to reduce our Asset Ledger by and increase our Cost of Sales expense. The stock item must have the Asset Ledger and the Standard Cost set.

cost-of-goods-sold-report

2. Purchases

Unlike sales, if you have the Asset Ledger Code set, then if you post a purchase to Xero, then the purchase price should be posted to the Asset Ledger in Xero already. The only variance might be if the Purchase Price varies significantly from the Standard Cost, (which is used in the valuation). You can also use the “Purchases by Product” report on the Purchasing workbench to help identify this.

3. Production

Generally this will be journalled from your Work In Progress (WIP) Ledger(s) to your Finished Goods Ledger. You may also have to journal the packaging from your Dry Goods ledger to your Finished Goods Ledger. You can do both of these using the following reports:

    1. Bottling WIP Movement Journals to capture all the WIP to Finished Goods movements
    2. Bottling Dry Goods Movement Journals to capture all the Dry Goods to Finished Goods movements (such as packaging)

Once you have journal these, in theory your closing balance in you account system should match the current Stock On Hand Valuation report from Vinsight effectively validating the equation “Opening Balance – Sales + Purchases + Produced = Closing Balance”.

You should audit any differences and in the first instance find and remedy want differences at source, and only if needed, journal a variance to bring them into balance.