All GL account numbers referred to are those that are originally provided by BSS.
The following situations listed below are those that can cause a difference in the inventory value for parts between the General Ledger and Parts Inventory modules. In each situation, the difference in inventory value should either be posted immediately or recorded manually so that it can be used in the year-end evaluation.
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All GL account numbers referred to are those that are originally provided by BSS. |
Situation A - Applying Price Books or Updates to Inventory
When you apply a price book or price update to your inventory, the total value of your inventory will increase or decrease without affecting your General Ledger. The typical adjustments to the GL for an increase in inventory value would debit the 13200 parts inventory account and credit the 43600 inventory adjustment account for the amount of the change.
Situation B - Part # Changes
When you are changing a part number to another number, the value of the inventory only changes if the new part number already exists and the old part number has an on-hand quantity other than zero. Therefore, the General Ledger would have to be adjusted by the on-hand quantity of the old part number multiplied by the difference between the cost of the new part and the cost of the old part. For example, let's say that the old part has a cost of $1.00 with an on-hand quantity of 3, and the new part number costs $3.00 with an on-hand quantity of 4. The inventory adjustment would be debit to 13200 and a credit to 43600 for the amount of $6.00 [($3.00 - $1.00) x 3 = $6.00].
Situation C - Price Changes
When you change a part's cost, the inventory value is changed without touching the General Ledger. This change in inventory value is equal to the change in the part's cost multiplied by it's current on-hand quantity. The adjusting entries are identical to those in Situation A (above).
Situation D - Discounts on Parts Purchases
When you purchase parts for resale, you should always debit the inventory account (Example: 13200) by the total cost of the parts - not your discounted price. The difference between the cost and your purchase price should be recorded in the discounts earned account (50000). For example, if you made a cash purchase of a part whose cost is listed at $100 but you get a 10% discount because of a promotion, you would debit the inventory (13200) for $100, credit cash (10200) for $90, and credit discounts earned (50000) for $10.
Situation E - Returned Parts
Sometimes parts undergo price changes between the sale and the return of a part. When this happens, the inventory account (13200) will still match the Parts Inventory value, but the cost and adjusted accounts will be off.
Let's take the situation where a part with cost a of $100 is sold on a retail counter ticket, returned, then the cost is changed. The cost entries made by the computer for the sale would be a credit to 13200 and a debit to 43200 for $100. When the part was returned, the computer would credit 43200 and debit 13200 for $100, thus reversing the original entries. When the price changed to $120, you would then credit the 43600 and debit the 13200 for $20 to increase the cost. Therefore, the net effect of these entries is a $20 debit to 13200 and credit to 43600.
However, let's assume that the price change happened between the sale and the return of the part. The journal entries for the sale would still be to credit the 13200 and debit the 43200 for $100, but when the price change occurs, the computer will then debit 13200 and credit 43200 for $120, thus making the 13200 too high and the 43200 too low by $20. Therefore, when there is a price change between the sale and the return, the entries to record the $20 price change are not made. To correct this, you would need to debit 43200 and credit 43600 by $20, assuming that you knew there was a price change.
Situation F - Non-Inventory Parts Sales
There are times when parts are sold to customers, but are not entered in your inventory file on the computer. The computer does not always know how much your cost is on these parts, so it will assume that your cost is a fixed percentage of the sales price.
For example, if I sold such a part for $100 and my percentage was set at 67%, the computer would calculate my cost as having been $67. Let's say that I actually purchased that part for $50, so my bookkeeper made a debit entry to 13200 for $50 to record my purchase. When I sell that part, the computer will credit the 13200 for $67 because that is what it calculated for my purchase price. Therefore, sales of non-inventory parts can cause the value in the 13200 account to be inaccurate. The most accurate way of handling this is to set the price of these parts so that the % for cost comes out to be your cost. In the example above, if my cost were $50 and the costing percentage were 67%, I would set my price at $74.63 because 67% of $74.63 is $50.
In addition, the invoices for your purchase of these parts are not often entered at the same time as the counter invoices are entered for the sale. Therefore, there will be an additional difference caused by parts that were purchased but not yet sold, and parts that were sold but not yet posted as a purchase to the 13200.The Formula would be ($50.00 / .67) = $74.63
Situation G - Direct Ship Sales
Direct Ship sales happen when a part is sold to a customer but will be shipped to them directly from the manufacturer. Therefore your inventory is never truly increased/decreased with sales and receipting orders, so the on-hand quantities for direct ship parts will not be accurate until they are receipted and sold. This means that the parts will be correct in the long run, but any particular point in time between then will seem to be incorrect.
Situation H - Adding/Deleting Parts
When parts are added to inventory with an on-hand quantity, or if they are deleted while they still have an on-hand quantity, then there should be General Ledger journal entries to record these increase/decreases in inventory value. The difference in inventory value will be the cost of the part multiplied by the on-hand quantity of that part.
Situation I - Price Changes on Ordered Parts
When a part order is receipted the invoice has not yet arrived, so the inventory value increases at the existing rate. However, the invoice may have a new price for one or more parts and the GL is therefore increased by a higher value than the inventory. This can lead to the inventory consistently having a lower value than the GL value.
For example, let's say that there is a part whose cost is $10 with a zero quantity, but 15 are on order. When the packing slip comes in, the order is receipted into inventory at a value of $150. However, the invoice comes in few days later with a new cost of $13 per part, so the bookkeeper increases the GL by $195. If the cost of this part is not immediately changed before the parts are sold, then there will be a residual value of $195-$150=$45 left in the GL that is unaccounted for in the inventory.
Therefore, each time an order is receipted and an invoice is received, these two should be matched to determine if there were any differences in value for the receipted parts and any necessary corrections made.
Situation J - Erroneous cost and quantity
It is possible that there is a large quantity or cost that is throwing the part totals askew. Run Parts Inventory>>Reports>>Report Generator>>Print Report>>Press F2 for default reports>>Select Highestval. Run this report for all manufacturers and set a cutoff amount to make the report smaller. If there is an issue with a cost and quantity normally that would be obvious on the first page.
Situation K - Erroneous negative on quantity
If you are running the $ value report looking at negative on hand quantities you may want to veriiy that you do not have an extreme negative on hand quantity report. You can run one of two reports if you wish. Parts Inventory>>Reports>>Report Generator>>Print Report>>Press F2 for default reports>>Select Negbal or Parts Inventory>>Lists>>Zero/Negative Balance>>Any format