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:
- In the
GL Control Setup the Purchases Account should now be the Stock on
Hand Account.
- Change
the description of the Closing Stock account in direct expenses to Cost Of
Goods Sold or COGS.
- Debit
the COGS account and Credit COGS Account with the total of the
Purchases account to clear it.
- 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.
|