Accounting Of Inventory Stock

Accounting Of Inventory Stock

The value of available inventory is treated as a Current Asset in the company's Chart of Accounts. To prepare a Balance Sheet, you should make the accounting entries for those assets. There are generally two different methods of accounting for inventory.

1. Auto/Perpetual Inventory

The system posts pertinent accounting entries for each stock transaction during this process, keeping the stock balance and accounting balance in sync. For new accounts, this is the default configuration in ERPNext. Perpetual Inventory is enabled in the Company by default.

Items that you purchase and receive are recorded as assets of the business (stock-in-hand). An expense (Cost of Goods Sold) equal to the landed cost of the goods is recorded when you sell and deliver them. Every stock transaction results in a new entry in the general ledger. As a result, the figure listed in the Stock Ledger always matches the balance of the appropriate account. As a result, the balance sheet and profit and loss statement are more accurate.

To verify the accounting entries for a specific stock transaction, review the Perpetual Inventory documentation.

1.2 Advantages of Perpetual Inventory

You will find it simpler to manage the correctness of the company's asset and expense figures with the perpetual inventory system. Stock balances and pertinent account balances will always be in sync, eliminating the need for a recurring human entry to keep them in balance.

All future Stock Ledger entries and GL Entries will be recalculated for all components of that transaction in the event of new back-dated stock transactions or the cancellation or modification of an existing transaction. The same holds true if any costs are later included in the submitted Purchase Receipt via the Landed Cost Voucher.

Remember that the item valuation rate has a total impact on perpetual inventory. So, while conducting any incoming stock transactions such as Purchase Receipt, Material Receipt, or Manufacturing/Repack, you need to be more careful when entering the valuation rate.

2. Periodic Inventory

The stock balance and related account balance must be synchronized manually using this method, which requires accounting entries. At the moment of material purchases or sales, the system does not immediately generate accounting entries for assets.

When you purchase and receive products within an accounting period, an expense is recorded in your accounting software. Some of these things are sold and delivered by you.

The whole amount of goods that will be sold must be recorded as the company's assets at the end of each accounting period. This amount is frequently referred to as stock-in-hand.

The difference between the stock-in-hand value from the prior period and the value of the products still up for sale might be either positive or negative. If this value is positive, it is subtracted from costs (Cost of Goods Sold) and added to assets (stock-in-hand). If the result is bad, a reverse entry is made.

Periodic Inventory is the name of the entire procedure.

You must follow a few procedures to migrate if you are currently using Periodic Inventory and want to switch to Perpetual Inventory.