Ostendo maintains a real time perpetual inventory and work in progress value in the Balance Sheet, which negates the need to do manual opening and closing inventory and work in progress journals each month. Ostendo creates real time journals into Inventory and Work in Progress accounts and posts any variances into the Variance accounts in the Cost of Sales. This is the equivalent of the journals to the Cost of Sales when doing manual opening and closing inventory and work in progress journals each month.
Below are the journals Ostendo creates when maintaining a perpetual inventory and work in progress value in the Balance Sheet.
Inventory and Work in Progress Value
Because Ostendo is creating real time journals as transactions occur, the Average Cost of Inventory and Work in Progress Value is updated on the actual date the transaction is created even if the transaction causing the change is back dated.
Inventory can be valued by Standard or Average Cost and these methods affect the journals differently. With Average Costing the inventory value is changed as transactions occur. With Standard Costing the item unit cost is fixed and so varying actual costs will create more variances than when Average Costing is used. The triggers for updating inventory value are;
- Purchase Receipts
- Work Order Receipts
- Inventory Adjustments
- Stock Counts
- Revaluation of Costs
- Negative Inventory Quantities
Work in Progress is tracked separately for Jobs and Work Orders. Work in Progress is debited when costs are issued to Jobs and Assembly Orders. The transactions that increase WIP on a Job or Assembly Order are;
- Inventory, Descriptor or Catalogue Issues
- Inventory, Descriptor or Catalogue Purchase Receipts to Jobs or Assembly Orders
- Timesheet Entries
The transactions that decrease WIP on a Job or Assembly Order are;
- Job Invoice posted
- Assembly Order Finished Goods Receipt
- Closing the status of a Job or Assembly Order to Closed
Please note that any costs issued to a job after the final invoice has been generated will accumulate WIP which will only be credited when the Job Status is changed to Closed. Any costs issued to an Assembly Order after all finished goods have been receipted will accumulate WIP which will only be credited when the Assembly Order Status is changed to Closed.
Purchase Receipt Variance
This only occurs if Standard Costing is used as the inventory valuation method. If the Purchase Receipt Cost varies from the Item Standard Cost the difference is posted to the Purchase Receipt Variance account in Cost of Sales. Inventory Value is updated at the Standard Cost.
Purchase Price Variance
If the Purchase Price on the Purchase Invoice varies from the Purchase Order Price in the Receipt Cost the difference is posted to the Purchase Price Variance. Inventory value is updated at the time of purchase receipt and cannot be retrospectively updated when a supplier invoice is entered.
Job WIP Variance
Any costs issued to a job after the final invoice has been generated will accumulate WIP which will only be credited when the Job Status is changed to Closed. Most users prefer the option to post these costs to the Cost of Goods Sold account instead of a Job WIP Variance account.
Assembly WIP Variance
Any costs issued to an Assembly Order after all finished goods have been receipted will accumulate WIP which will only be credited when the Assembly Order Status is changed to Closed.
Inventory value is updated at the time of assembly receipt and cannot be retrospectively updated after all costs are issued to the Assembly Order. For this reason, we recommend using the Planned or Standard Cost for Assembly Receipts as opposed to the Actual Cost as this will only update inventory value based on the current actual costs on the assembly order at the time of receipt.
Assembly Receipt Variance
This only occurs if Standard Costing is used as the inventory valuation method. If the Assembly Receipt Cost varies from the Item Standard Cost the difference is posted to the Assembly Receipt Variance account in Cost of Sales. Inventory Value is updated at the Standard Cost.
Custom configured products are affected differently.
- If the Assembly Order was for a Custom Product and that Product is still in stock then add the Cost to the Stock record
- If the Assembly Order was for a Custom Product and that Product has been withdrawn from stock but has not yet been Invoiced then add the cost to the Sales Order ‘Pick but not invoiced’ record
- If the Assembly Order was for a Custom Product and that Product has been despatched and Invoiced then add the cost to the Sales Order’s COGS
Inventory Adjustment Variance
If inventory quantities are manually adjusted the difference in value is posted to the Inventory Adjustment Variance Account.
Inventory Count Variance
If inventory quantities are adjusted from a Stock Count the difference in value is posted to the Inventory Count Variance Account.
Inventory Revaluation Variance
If the unit inventory cost used for inventory valuation is changed the difference in value is posted to the Inventory Revaluation Variance Account. This will be either Average or Standard Cost depending on which option is selected.
Negative Inventory Variance
This only occurs if Average Costing is used as the inventory valuation method. If an inventory item goes into negative stock the current average cost is retained until the quantity comes out of negative. When this happens the difference between the old average cost and the new average cost is posted into Negative Inventory Value.
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