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Adjusting your inventory balance sheet account - year end preparation

Created on  | Last modified on  Highlight Matches

Summary

How to record the value of your inventory on hand to your balance sheet in Sage Accounting.

Description

You will need to record the value of your inventory on hand to your Balance Sheet if you are using a periodic inventory system.

Follow these steps if you do not have the Advanced Inventory module in your company.

 

Resolution

To update your Balance Sheet with your final stock value, you will need to process a journal to specific balance sheet accounts.

Click to view the example:

In this example, we have assumed you run your Balance Sheet from 28/29 February (your financial year end).

example of stock values on a balnace sheet

There are three steps when processing your inventory movement on your Balance Sheet.

  1. Set up the correct accounts in Sage Accounting.
  2. Calculate your Inventory movement.
  3. Process your Inventory Journal to reflect the above-mentioned movement.

Step 1 – Create the following Inventory Accounts

To process your journal entry, you will need to set up some inventory accounts (if they do not already exist).

Ensure you select the correct categories. Sage Accounting uses these categories to position the amounts in the right section of your Balance Sheet.

  1. Click Accounts and then List of Accounts.
  2. Click Add an Account.
  3. Inventory Movement – Assets under the category Current Assets.
  4. Inventory Movement – Cost of Sales under the category Cost of Sales.

Step 2 – Calculating the Inventory Value

Assume you began using Sage Accounting at the beginning of the current year. You will have created your inventory items with their opening balances. Sage Accounting will this value to a System Account called Inventory Opening Balance. The inventory closing value is the total value you find in the inventory valuation report.

 NOTE: You process a stock take to ensure your item quantities on hand show correctly on the Item Valuation report. Also check that the average cost value for each item is correct (in case you made mistakes). 

Click to view the example:

Using an opening inventory value of R10,000.00 and a closing inventory value of R75,000.00. This will show an inventory movement of R65,000.00. Which is the difference between the inventory opening balance and the inventory closing balance. It is the inventory movement amount that you will process in your journal.

Step 3 – Process the Inventory Journal Entry

 CAUTION: We advise you to consult with your accountant before processing these journals. 

 NOTE: You will process the journal as a credit if your closing inventory value is less than your opening inventory value. You will process the journal as a debit if your closing inventory value is more than your opening inventory value.

  1. Click Accountants Area and then Process Journal Entries.
  2. Select the last day of your financial year.
  3. Select to debit or credit the account.
  4. By Account, select the Inventory Movement – Assets account.
  5. Enter a reference like JNLYE24.
  6. Enter a description like YE Inventory Journal.
  7. Select No VAT.
  8. Enter the amount.
  9. By Affecting Acc, select the Inventory Movement – Cost of Sales account.