I wonder if anybody can help me with a problem I have encountered using Sage Instant accounts
I am currently working through ICB Level 2 computerised via a course with The Distance Learning partnership and they have provided me with Sage Instant accounts
I am currently a the point where I need to account for opening and closing stocks in the trading account in order to produce an accurate P&L .
I have opened 2 accounts in the cost of sales section for O/stock and Closing Stock as well as the stock account in current assets. and am completing the following journals as per the DLP Manual.
31st January (First month of trading therefore no opening stock)
Dr Stock Asset
Cr Closing Stock
Produce P&L for January
1st February
Dr Opening Stock
Cr Stock asset
28th February Take physical stock check
Dr Stock asset
Cr Closing Stock
Produce P&L for February
1st March
Dr Opening Stock
Cr Stock asset
31st March Take physical stock check
Dr Stock asset
Cr Closing Stock
Produce P&L for 3 Months Jan - March
Using this method I find that balances are accumulating on both opening and Closing Stocks a/cs therefore the figures showing on the P& L do not reflect the actual opening and Closing stock levels, but rather the totals of the 3 months stock checks which seem to me to be irrelevant.
I realise that because the difference between the 2 accounts does reflect the actual stock level and therefore the rest of the P&L is correct, but I feel I could encounter difficulities trying to explain the opening and Closing stock figures to a non-financial manager.
I approached my tutor with this problem for which he had no immediate answer. After presumably conferring with DLP he concluded that what I was doing was correct and that this is the way that Sage Instant accounts deals with the Stock issue.
I am not saying that the tutor is incorrect. He obviously has vastly more experience than I have. Its just that I still feel uneasy that I have not quite got to the root of the problem and that maybe I am misunderstanding some basic accounting concept.
Can any of you kind people out there who are using Sage instant help put my mind at rest
When I'm adjusting for stock on a monthly basis on Sage, instead of using the opening stock and closing stock accounts in Cost of Sales, I set up a movement on stock account. Then rather than fully reversing out the closing stock I simply increase or decrease closing stock in the balance as appropriate. The other side of the journal gets posted to stock movement. This obviously gives you the same overall result as your method, but I believe it gives a truer picture when you print a P&L report. The report shows the movement in stock over the month which I've found clients find easier to understand.
Using your tutors method distorts stock levels in COS which in my experience is bound to lead to a confused user.
-- Edited by Dustin57 at 19:32, 2008-10-09
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The first mistake I can see you are making is adjusting opening stock throughout the year.
Opening stock is only at the start of the accounting period (the year). It is only the closing stock that changes throughout the year to reach the final year end closing stock.
1st day of year:
Dr Opening Stock Cr Stock on hand (Asset)
During periods... (ie. all purchases of stock)
Dr Purchases Cr Suppliers, Bank etc
End of reporting period (usually monthly, or quarterly)
Dr Stock on Hand (Asset) Cr Closing Stock
Start of next reporting period (new month/quarter)
Dr Closing Stock (only to Opening stock if start of financial period/year as above) Cr Stock on Hand (Asset)
Once you do it this way, and see how everything moves, I think you'll see it is logical, accurate and an easy way to manage it all. Hope that helps!
Yes, that is correct... as the Opening Stock account throughout the year always shows the same figure - as it doesn't change during the year as it was always the same point in time.
Yes, the journals are as you've mentioned. The reason for this is, the closing stock is what changes throughout the year to eventually end up correct at the year end. It really only needs to be done for each reporting period, so usually monthly or quarterly.
One thing aslo to bear in mind though... this Opening Stock is the Opening stock always as YTD, not on a monthly reporting basis. When you consider a TB and the ledger balance, they are always related to either a point in time or over a period of time (P&L - but always YTD as it's on an annual basis).
I'm not entirely sure how the Sage P&L reports appear as we almost always produce management accounts using our own Financial Management Reporting System which handles it automatically. When it comes to monthly/quarterly reporting, the Opening Stock is actually different to what the Opening Stock Account balance is (as is the case with all P&L accounts) but it should show a reversal of the close stock from the previous period (month or quarter) just as the new year Opening Stock shows it from the previous period.
If you're not sure what I mean, you can have a look at some sample management reports which can be downloaded from the link above - this shows it as an example which may be a little more clear for you.
