Hello all......I have in the past worked for various types of company that buys materials in and within a few weeks these are allocated to certain jobs......for example the building trade.
So sometimes, it is a case of booking the materials purchased to direct materials/purchases and from time to time making adjustments from this account to WIP.......and when that specific job was completed (at least one period later), reverse this journal so that the costs are allocated to COS. I had never booked materials direct to the WIP account even if it was clear that it related to a 'future' job. I seem to be clear on this and feel it is correct.....unless anyone thinks otherwise!
Anyway, I have a problem (getting my head round) with a manufacturing company or at least a company that has products made by buying in materials from home and abroad and having the final goods 'assembled' by another supplier ready for retail/wholesale sale. I expect that the costs of materials and assembly and associated costs (duty, carriage etc) should be booked to purchases and moved into WIP at the end of each period?? Then when the finished goods are delivered, these WIP's are transferred back to the P&L under purchases. THEN (using the Sage sample Nominal structure example), at the end of each month an adjustment for closing stock would be made.
At least by booking these items to the P&L it should get rid of problems with revaluation of stock relating to foreign currency purchases!???
So my problem is the steps taken to use the accounts listed in Sage being Closing Stock (P&L), WIP, Stock AND finished goods. I am not a slave to the SAGE example, but these accounts are there for a reason I just wonder why there would be an opening and closing stock account in the P&L and not similar for WIP? Also, what is the distinction between 'Stock' and 'Finished goods' accounts..........the structure lists 1001-1003 - Stock/WIP/FInished Goods?? From time to time a complete product is bought from a wholesaler which is different fro the scenario described above......would these items be booked to P&L and taken care off in the Closing stock adjustment or booked to Stock/Finished Goods???
Does my assumption that booking materials etc in foreign currencies to the P&L mean that when they are assembled as part of finished goods mean that there is no reval issue (obviously the Creditors account would be revalued as long as it remained unpaid).
I would be in the habit of detailing the WIP account at the end of every period, so this probably isn't an issue in terms of how it is booked/journalled to/from the P&L although in this case it would be from WIP to Stock/Finished Goods.....although if this is directly or via the P&L is something else!
I am sure there are many many businesses that are similar and hopefully there is someone out there who does this kind of thing every day who can help? I am not completely lost here......but want to be doing it in the most correct and accepted way. Thanks!
You're right! Your post is long-winded. If I understand your questions correctly you are handling the accounting transaction in the same manner too. Regardless of industry or sector, the cleanest, and most simple way of recording stock transactions are to code the purchases to cost of sales. The currency issue is immaterial as far as the nominal is concerned because Sage uses the stored exchange rate to revalue foreign purchases, so provided that this is reviewed regularly, any losses or gains should be minimal and therefore insignificant in accounting terms. Hopefully this has sorted the costing for purchases for you. If not ask again.
The reason that stock is separated out in Sage, or any accounting package that deals with stock is because in manufacturing there are 3 stages to getting the finished goods. Raw materials, WIP and Finished goods. The valuation for these stages are different, hence the separate categories. Raw materials are typically valued at cost. WIP is typically valued at cost plus an element of labour and overheads, depending on the percentage of completion. Finished goods are typically valued at selling price less margin. A periodical valuation of the 3 elements, usually monthly, with the stock movement being posted to adjust the stock valuation of each element and the opposite entry going to stock movement within P&L takes care of any adjustment required to cost of sales. If you are using Sage Stock and Bill of Materials to record the movement between types of stock held, the only thing you should be monitoring is the yield.
So in summary, 3 stock valuations in the balance sheet and either 3 opening stocks plus purchases less closing stocks or purchases plus/minus stock movement within the profit and loss account is what you want and the above will provide it.
Hope this helps, but if you need more detail, let me know.
