Difference Between Non-perpetual (Periodic) and Perpetual Inventory

Transcription

1 Difference Between Non-perpetual (Periodic) and Perpetual Inventory Overall Business Processes SYSTEM BASIC INITIALIZATION Related Business Process FINANCIAL ACCOUNTING Responsible Department ACCOUNTING Involved Departments ACCOUNTING Last Updated 15/03/2011 Copyright 2011 Supernova Consulting Ltd. All rights reserved. The current version of the copyrights, trademarks, and disclaimers at is valid for this document. This content may not be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information storage or retrieval system, without written permission. Requests for permission should be directed to , or mailed to Supernova Consulting Ltd, P.O. Box 56747, 3309, Limassol, Cyprus Copyright 2011 Supernova Consulting Ltd. All rights reserved. Page 1 of 6

2 CONTENTS NonPerpetual Inventory... 3 Introduction... 3 Procedure... 3 Perpetual Inventory... 5 Introduction... 5 Procedure... 5 Copyright 2011 Supernova Consulting Ltd. All rights reserved. Page 2 of 6

3 NonPerpetual Inventory Introduction A nonperpetual inventory system is an inventory management system in which costs of inventories are not maintained on a constant basis. In a nonperpetual inventory system, sales, purchasing, inventory, and production transactions, which reflect the inventory value, do not generate inventory related monetary entries directly into the general ledger. Therefore, the inventory value of a company is not revalued on every inventory release or receipt. Instead, the inventory balance is updated once every accounting period or after a physical inventory count. The Inventory Valuation report is central to the nonperpetual inventory system. In a nonperpetual inventory system, the value of inventory postings is not reflected by monetary transactions in the accounting system. To calculate the value of inventory at any given time, you need to run the Inventory Valuation report. This report lets you obtain an up-to-date valuation of the existing inventory and to create what-if scenarios. Procedure The following are the different calculation methods for inventory valuation that can be used in a nonperpetual inventory system: Moving Average: this method takes the weighted average of all units available for sale during the accounting period and then uses that average cost to determine the value of the cost of goods sold and the ending inventory. Assuming prices increase over time, the items in stock are overvalued. FIFO (First In First Out): according to this method, the first unit added to the inventory is the first to be sold. The newer inventory, therefore, is left over at the end of the accounting period. Assuming prices increase over time, the items in stock are valuated using the higher prices from the later purchase documents. Last Evaluated Price: this method uses the last valuated prices. SAP Business One valuates the items using the value that was determined for an item under the last valuation. Copyright 2011 Supernova Consulting Ltd. All rights reserved. Page 3 of 6

4 Journal Entries Nonperpetual Stock: The examples in the tables refer to a case in which a company purchases 1000 items at 2.00 Purchases Purchases (P&L) 2,000 Supplier 2,000 Sales Customer 2,800 Sales 2,800 At period end with physical stock take to determine closing stock in hand and calculate cost of sales, i.e. 31/12/09 Opening stock 01/01/ Purchase 2,000 = Goods available 2,600 - Closing stock 31/12/09-1,200 = Cost of sales 1,400 With Physical Stock take 31/12/09 Stock (Balance Sheet) 1,400 Closing Stock (P&L) 1,400 01/01/10 Opening Stock (P&L) 1,400 Stock (Balance Sheet) 1,400 Copyright 2011 Supernova Consulting Ltd. All rights reserved. Page 4 of 6

5 Perpetual Inventory Introduction A perpetual inventory system reflects the value of inventory postings in terms of monetary transactions in the accounting system. These monetary transactions are carried out only when items defined as inventory items are received or released from stock. Procedure The following three valuation methods for calculating the inventory value are supported: Moving Average: calculates the average cost for the item in each sales, purchasing, inventory, and production transaction. Standard: calculates the inventory value by a fixed price, which is then used for all transactions. FIFO: calculates the inventory value by the FIFO (first in first out) method. This means that goods purchased first (or produced first) are sold first, regardless of the actual goods flow. o Each inventory receipt transaction creates a layer of quantities linked to costs. A FIFO layer is defined as the quantity of an item in a warehouse with a particular cost value. o Each inventory release transaction uses quantities and their corresponding costs from the first open layer or layers. When you use a perpetual inventory system, SAP Business One lets you do the following: Manage the three methods in the same company. You can select a certain valuation method for each item individually. Update the valuation method of your items globally. For information, see Updating Valuation Methods. Update the calculated item cost for each item, if required. For information, see Revaluing the Inventory. Copyright 2011 Supernova Consulting Ltd. All rights reserved. Page 5 of 6

6 Journal Entries Perpetual Stock: The examples in the tables refer to a case in which a company purchases 1000 items at 2.00 Purchases Stock (Balance Sheet) 2,000 Supplier 2,000 Sales Assuming the moving average method is the company valuation method then Stock and cost of sales accounts are posted with the moving average and sales and customer with the sales price. Cost of Sales 1,400 Stock (Balance Sheet) 1,400 Customer 2,800 Sales 2,800 Copyright 2011 Supernova Consulting Ltd. All rights reserved. Page 6 of 6