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Opening Stock / Closing Stock /Stock on Hand

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Judy

Joined: 10-Oct-2013
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    Posted: 16-Aug-2018 at 10:10

GL COGS vs Opening/Closing Stock

 

There are 2 systems that can be used to post sales and purchases from the trading system. 

 

The simplest and the one I think most clients would understand is the COGS (cost of goods sold ) method. The other is the opening stock + purchases - closing stock method.

 

The GL Control Account setup determines which method is used when posting transactions from the trading system.

 

When the Purchases GL Account is the same account as Stock On Hand the COGS method is used. The description for the Closing Stock/COGS GL Account should then be Cost of Goods Sold (not Closing Stock).

 

The journal entries generated for Customer Invoices and Goods In for both methods are as follows:-

 

Opening/Closing Stock Method

 

An invoice from the trading system for $100 plus $10 GST and a cost of $70 would be posted :-

 

GL Account

Type

Debit 

Credit

Sales

Income

100

GST Payable *

Current Liability

10

Debtors (Accounts Receivable)

Current Asset

110

Stock On Hand

Current Asset

70

Closing Stock

Direct Expense

70

 

A Goods in from the trading system for $500 plus $50 GST would be posted :-

 

GL Account

Debit 

Credit

Purchases

Direct Expense

500

GST Paid *

Current Liability

50

Creditors (Accounts Payable)

Current Liability

550

Stock On Hand

Current Asset

500

Closing Stock

Direct Expense

500

 

The Closing Stock Account should always equal the stock on hand asset account.  

 

Cost of Sales  = Opening Stock + Purchases - Closing Stock

 

A journal is required at the start to debit Opening Stock and Credit Closing stock with the Stock On Hand account value. Optionally to make the MTD column in the P&L look correct a journal can be done monthly.

 

 

COGS Method 

 

Simpler and easier to maintain for most clients.

 

An invoice from the trading system for $100 plus $10 GST and a cost of $70 would be posted :-

 

GL Account

Type

Debit 

Credit

Sales

Income

100

GST Payable *

Current Liability

10

Debtors (Accounts Receivable)

Current Asset

110

Stock On Hand

Current Asset

70

Cost of Goods Sold (COGS)

Direct Expense

70

 

A Goods in from the trading system for $500 plus $50 GST would be posted :-

 

GL Account

Debit 

Credit

Stock On Hand

Current Asset

500

GST Paid *

Current Liability

50

Creditors (Accounts Payable)

Current Liability

550

 

 

To convert to the COGS system:

 

  1. In the GL Control Setup the Purchases Account should now be the Stock on Hand Account.
  2. Change the description of the Closing Stock account in direct expenses to Cost Of Goods Sold or COGS.
  3. Debit the COGS account and Credit COGS Account with the total of the Purchases account to clear it.  
  4. To make the adjustment look cleaner the journal can be done with this month's date to clear the MTD figure and then a journal dated end of last month to clear the YTD Balance remaining after that.

 

 

*GST

 

The accounts for GST Payable/ Paid/Collected can be one balance sheet account or two based on client preference. 

 

Sales create a GST credit in the balance sheet -  a liability to pay the ATO 

Purchases create an asset or negative liability reducing the amount owing to the ATO.

 

Freight

 

If the GL Control has an account for Freight Sales, then a Sales Invoice will generate an additional journal line to Credit the Freight account in both methods.

 

If the GL Control has an account for Freight In, then a Goods In will generate an additional journal line to Debit the Freight In account in both methods.

When changing a system to COGS:

 

In Supplier Control in the Trading system also change any of the Supplier GL Codes that point to the Purchases account and make them Stock on Hand account.

 

If no GL Code is specified on a supplier you can leave it blank as it will still default to the stock on hand account.

 

 

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