i have two items in transit at month end and i have included them in my stock valuation at month end. As these items are abnormally high value they are making my stock figure look abnormally high. Which is making the GP look really good for the month!
I have posted the invoice from the vendor in the month that i am closing but invoiced the customer in the next month.
My question is do i make an accrual in the month i am closing for the sales invoice so that the purchase and sales are both in the correct month, but what is confusing and scratching my head a bit is that the goods are still going to be shown as in transit. I know i am doing something wrong here!
Would certainly agree with Rob that this should not affect P&L for the month if stock is correctly valued at purchase price, as we have this every month as our goods are purchased FOB China and are "in stock" but in transit for 5-6 weeks before we invoice our customers on delivery to them in Europe.
The only issue we have for monthly management accounts are the exchange gains/losses when the purchase invoices are paid, as these often fall into the preceding month to the sales invoicing and we have to move them to the same month as the sales invoice or it inflates/deflates GP in the month the invoice is paid.
Thank you Rob and Ridesy for your reply . I am going to check that the goods have been entered as the purchase cost, i think it should have been.
Also the scenario about foreign currency exchanges is another bone of contention! How we have been dealing with this issue is to do a monthly currency revaluation and post an entry each month. So i take it you make journal entries and remove currency differences from one month to another every month? I am wondering if this may be a better way of dealing with this.
We mostly buy in dollars and sell in Euros' and with the way the markets have been behaving it does have a negative impact on trading. I cant really get my head around how best to deal with currency issues, unless you buy Dollars in advance, which we cant afford to do ... sorry i have just gone onto a completely different subject. If you can advise, i would love to hear how your company deals with such issues.
Just one more question for you, hope you can help or understand what i am saying ! so everyone agrees that in the closing month i have posted the purchase invoice for the goods in transit and the goods are in stock, so nil effect on the cost of goods,
But now is my next question , now in the next month i will have made the sale of the goods that were in transit. But no purchase invoice, as i posted it in the previous month so my profit for the month is going to be inflated for the next month? But am i right in saying that my stock will decrease, so in effect the net gain is my correct profit for the month. Does anyone understand what i am saying?!!
Thank you Rob and Ridesy for your reply . I am going to check that the goods have been entered as the purchase cost, i think it should have been.
Also the scenario about foreign currency exchanges is another bone of contention! How we have been dealing with this issue is to do a monthly currency revaluation and post an entry each month. So i take it you make journal entries and remove currency differences from one month to another every month? I am wondering if this may be a better way of dealing with this.
We mostly buy in dollars and sell in Euros' and with the way the markets have been behaving it does have a negative impact on trading. I cant really get my head around how best to deal with currency issues, unless you buy Dollars in advance, which we cant afford to do ... sorry i have just gone onto a completely different subject. If you can advise, i would love to hear how your company deals with such issues.
Regards
Kay
Hi Kay,
Must admit that we only make a token effort to resolve the currency variance issues in each month, as to revalue our Euro and Dollar bank balances, plus revalue stock purchased in Dollars each month would be a complete bind and iin our case we just don't need that level of complexity or detail.
Each month all we do is to move the large exchange gains/losses on purchases to the correct month for the sale of those items, as without this we can have a £10,000 exchange gain that totally scews profits in the month.
If you were to do the whole exercise properly I guess that all other bits listed (foreign currency bank balances and stocks) would need to be revauled to, but as I say for our business this doesn't seem necessary and this is done just once a year by the accountants for year end accounts.
