INVENTORY SET UP LESSON 6. Lesson 6: Inventory Set up LEARNING OUTCOME LEARNING OBJECTIVES

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1 INVENTORY SET UP LESSON 6 LEARNING OUTCOME The purpose of this lesson is to successfully set up the Inventory Module s defaults and master files. Lesson 6: Inventory Set up LEARNING OBJECTIVES On completion of this lesson, you will be able to: A. Set Inventory defaults. B. Create Inventory Master Files Requirements: Carry on working in the Mikes Photo Shop Company.

2 LESSON OVERVIEW Lesson 6: Section A Inventory defaults. Lesson 6: Section B Create Inventory Master Files. A INVENTORY DEFAULTS Having created your Company database, Suppliers and Customers, you are now ready to create the Inventory Master File. Inventory is also known as stock. Before commencing with any particular module, it is always advisable to first make sure that the defaults for that particular module are set-up to suit your business s structure. Let us look at the default settings for the Inventory Module: 1. From the system tree select the Inventory Module and select Maintenance. 2. Click on the Defaults Dialog. 2 6 Lesson Evolution Practitioner Core Course

3 3. The Inventory Defaults screen will display: 4. The screen defaults to the General tab. The following table explains the different options available at this stage: Option Explanation Set-up how you would like the system to default the Inventory prices. Inventory Prices Inclusive - shows the prices inclusive of Tax Exclusive - shows the prices exclusive of Tax. Hint: : [Ctrl] [F5] on documents will toggle between Inclusive and Exclusive. Evolution Practitioner Core Course Lesson 6 3

4 Option Explanation This option determines how Pastel Evolution processes the cost movements in the General Ledger. Method of Integration 1. Perpetual - This method continually posts the cost value of the applicable transaction to the General Ledger cost of sales. This keeps the value of the Inventory control account in the General Ledger balanced to the Stock Value in the inventory module. 2. Periodic - A method of inventory valuation for financial reporting purposes where a physical count of the inventory is performed at specific intervals. This accounting method for inventory valuation only keeps track of the inventory at the beginning of a period, the purchases made and the sales during the same period and is recorded under the asset section of the balance sheet. With this valuation method, it is much harder to track which individual items were destroyed or stolen, but a cross-reference can be made with the sales revenue to get a rough estimate of what was sold versus what was not. Many see this method as being inferior to the perpetual inventory method, which keeps track of inventory at the point of sale. Which method to use? To find assistance on this you can work through the Discussion on General Ledger Integration by pressing [F1] while your inventory defaults are on the screen. Usually you would select the perpetual method. 4 6 Lesson Evolution Practitioner Core Course

5 Option Explanation This will allow transactions to take place even if it will result in a negative stock-on-hand value. This is usually left deselected in which case Pastel Evolution will prevent your stock levels from going into negative values. Allow Negative Inventory Quantities Do not use this option to allow items to be invoiced that you do not purchase normally e.g. buy-outs or labour, rather use the service stock item on the inventory item maintenance. This method is however, not recommended as it will have a direct and immediate impact on your stock costing. When inventory items have been discontinued, you are able to de-activate them. Pastel Evolution will still allow historical look-ups of the product as well as the reprinting of documents such as Invoices and Goods Received Vouchers. When printing reports and so on you would usually not want them to appear. Show Inactive Items in Lookup As an example, perhaps a specific code has previously been discontinued and your company has now purchased the product again. If you do not make the product active again, you will not be able to select the product to process your Goods Received Voucher. If you attempt to re-create the item you will be warned that the item already exists. You may now also select whether you want Pastel Evolution to post your sales rep and projects per document or per line. In a case where you have more than one salesperson making a sale, you may now log this on the document e.g. Stock Item A on Line 1 for Rep Peter, Stock Item C on line 2 for Rep James and so on. Likewise with the projects you could also specify to allocate a different project per line. Pastel Evolution allows you to set your decimal places for quantity and values. Internally the values are stored to 13 decimal but the option selected here determines how accurate you would want values to be captured and displayed. Decimal Places Decimals places for quantities would depend on how each unit is sold, e.g. if you are selling steel in lengths, you would allow decimals so that you could sell 1.5m or 0,750mm etc. If however you sell full boxes of items you might want to the change the decimals for quantities to 0 decimals. Evolution Practitioner Core Course Lesson 6 5

6 Option Explanation You may now also select whether you want Pastel Evolution to post your sales rep and projects per document of per line. Sales Representative Options Project Options Price Lists Force Options In a case where you have more that one salesperson making a sale, you may now log this on the document e.g. Stock Item A on Line 1 for Rep Peter, Stock Item C on line 2 for Rep James and so on. With the projects you could now also specify to allocate a different project per line. This area will detail the different price lists available. If not created yet, right click and select Add / Edit. Complete the screen that appears and click OK. Use these tabs to force agents to complete the projects and/or sales reps field when processing transactions. 5. Select the Inventory tab: The following table explains the options available on the screen above: Option Invoice Numbering Automatic Numbering Explanation Here you will be able to set the numbering of your inventory codes to automatic or manual. You can specify the length and the alpha portion of the number e.g. 6:3 for Hand Polish would generate a code HAN003 or 5:2 would generate a code HA Lesson Evolution Practitioner Core Course

7 Option Code Start Tax Types Lot Status Explanation As with all other modules, enabling the filter option is useful for a large database. Where this option is selected, the agent will have to enter the specified number of characters before Pastel will begin to search for the item. The Tax Type defaults can be adjusted if need be. You can assign a lot status to inventory. 6. Click on the Invoices tab. The following screen will appear: This screen allows you to set up your numbering preferences for Invoices and Quotes. 7. Click on the Credit Notes tab. The following screen displays, allowing you to set your numbering preferences with regard to Credit Notes. Evolution Practitioner Core Course Lesson 6 7

8 8. Click on the Goods Received Vouchers tab. The following screen will appear: The following table will explain the options available on this screen: Option Goods Received Voucher Numbering Explanation Here you will be able to set the numbering of your Goods Received Vouchers as well as specifying how Pastel Evolution will link them to the general ledger. If selected, you can specify the number of characters to extend the number by. You are also able to specify a prefix to use. Automatic Numbering Separate GRV from Suppliers Invoice If your company has various branches you may want to set a prefix before the GRV, for example, MC GRV is Mayberry Central Goods Received Notes. This makes it easier to establish which branch s Goods Received is being queried when the document number is quoted. This allows you to receive inventory into the system at a value (usually average or latest cost). You can then invoice out the inventory without the inventory going into negative stock. Once the supplier s invoice is received the actual pricing can be captured on the GRV and the correct values can be transferred to the suppliers account. Advantage of splitting the GRV from the suppliers invoice is that Inventory can be invoiced out as soon as the inventory is received in the system. i Disadvantage is when the value, as accepted on the GRV, is different to the value on the suppliers invoice. The system will then have an amount in the Cost Variance account (GL) that will need to be journalised to the correct COS/Purchases account. The inventory item s cost, in the inventory module, is not updated with the actual cost, if the Supplier Invoice is different to the GRV when processed. 8 6 Lesson Evolution Practitioner Core Course

9 Option GRV Transaction Code Use Automatic discount Transaction Reference Importation Split Explanation Select the transaction code for Pastel Evolution to use when processing a Goods Received Note transaction. Here you can specify both a transaction code for the supplier s invoice as well as the Goods Received Vouchers. Select this option to activate automatic calculations of discounts when processing the GRVs. On each supplier a discount percentage can be specified. Those that do not have a discount percentage will be left as zero. The Use Automatic Discount option needs to be selected if you are going to allow automatic discounts while using this transaction and settlement discounts. The transaction reference is important for using when querying transactions on the supplier s statement. By selecting Supplier Invoice Number, Pastel Evolution will set the default reference to the supplier s invoice number although you will still be able to trace your internal GRV number. Importation Type s Split Tax option is used for processing of Goods Received vouchers where additional costs such as freight and customs duty are incurred. Usually you receive the invoice from the foreign stock supplier as well as your freight clearing agent. The freight clearing agent will then invoice you for additional costs as well as taxes. The default tax type is selected here but you will still be able to change this on the transaction lines of the GRV. The following table explains how entries will be posted in the system: When posting a GRV the system will post the following entries: Inventory Module General Ledger (GL) Quantity on hand will be increased by the GRV quantity Excluding Tax Total GRV Value Dr - Inventory Control Cr - Purchases Accrual Payables Module No transaction Evolution Practitioner Core Course Lesson 6 9

10 When posting the supplier s invoice, the system will post the following entries: Inventory Module General Ledger (GL) - Quantity on hand will be increased by the GRV quantity Dr Purchases Accrual Dr Vat Account Cr Payables Control Payables Module Increase the suppliers balance by the value (Incl Vat) of the GRV 9. Click on the Return to Suppliers tab. The following screen displays, allowing you to set your numbering preference and coding structures. 10. Click on the Adjustments tab to set your numbering and coding preferences Lesson Evolution Practitioner Core Course

11 11. Click on the Warehouse Transfers tab and Serial Number Tracking tab to set the numbering and filters. If you are not registered for these modules, you cannot access. i If you are not registered for these modules, the defaults tab will be greyed out. This means that the system will not allow any defaults or processing in these modules. 12. The next tab is the Templates tab. The screen displays as follows: This screen allows you to set you template numbering preferences. 13. Click on the Segmented Inventory tab to set your inventory segment preferences. i If you are going to use a Segmented Inventory system, Pastel will need to be restarted. For more information on Segmented inventory press F1. Evolution Practitioner Core Course Lesson 6 11

12 14. Click on the Costing tab. The following screen will appear: Option Explanation You would now select the costing method to use when valuating your stock on hand. The three methods are: Cost Method 1. Weighted Average - Pastel Evolution will calculate the value at the average cost of all stock being brought into the database. 2. Latest Cost - Pastel Evolution will calculate the value at the cost of the last purchase of stock being brought into the database. 3. Manual Cost Pastel Evolution allows you to specify a fixed cost for inventory items and does not change unless you change it manually in the system. You are able to change the method used at a later stage. If you do change the method used, you will need to reconfirm the balances on the inventory module to the balance on the general ledger stock control account. Provided that you are satisfied at that point that the cost price per item is correct, you will need to process a journal to adjust the values in the general ledger. i The system will prompt you if you did not set all the required defaults. i Recommendation: You must create a Stock Variance Account so that when using Latest Cost or Manual Cost the variances when purchasing are posted to this account Lesson Evolution Practitioner Core Course

13 Before we continue do the following activity. ACTIVITY 6-1 The objective of this activity is to set Inventory defaults. Set Mike s Photoshop Inventory defaults as displayed in the screens on the previous pages. For more assistance ask your facilitator or trainer. B CREATE INVENTORY MASTER FILES During this section of the lesson we will create inventory master files. CREATE DELIVERY METHODS This section of the lesson will be covered by means of the following activity: ACTIVITY 6-2 The objective of this activity is to create new delivery methods. Mike s Photoshop will require the following delivery methods: Courier Collection By hand 1. Go to Maintenance Inventory......Delivery Methods or from the system tree Inventory Maintenance Delivery Methods. 2. Click on Add. 3. Type in Courier in the text box and if needed a specific comment related to the delivery method. 4. Click OK. For more assistance ask your facilitator or trainer. Evolution Practitioner Core Course Lesson 6 13

14 CREATE INVENTORY GROUPS / CATEGORIES Having confirmed and adjusted your inventory defaults, you will now be able to create your Inventory Items. You will start by creating a list of stock items that Mike s Photo Shop will be using. You will then create a logical sequence of stock codes as well as groupings of items. There are two types of inventory items, namely: Physical inventory item Service stock item This is an item that can be purchased and sold whilst keeping track of the quantity that is left in stock. It is an item that can be seen in the flesh. This is generally an item that does not get purchased but is only sold. Examples include labour or delivery fees. The quantity on hand in Pastel Evolution is not maintained for service stock items. i Before you can group your inventory items, you need to analyse the business as well as the stock items you are selling. ACTIVITY 6-3 The objective of this activity is to create inventory groups. Create the following for Mike s Photoshop groups (only codes and descriptions, leave rest of the options blank): Code: GLOSS MATT FRA Description: Gloss finished photos Matt finished photos Photo Frames 1. Go to Maintenance Inventory...Groups or from the system tree Inventory Maintenance Groups Lesson Evolution Practitioner Core Course

15 2. Click on Add. 3. Complete the screen by entering the code and description of the groups. 4. Click OK. 5. Create the rest of the groups. After creating all of the groups, your screen should display the following: CREATE INVENTORY ITEMS A generic process of setting up your product s selling prices is: Cost Price Add Mark up % Selling Price This section of the lesson will be covered by means of the following activity: Evolution Practitioner Core Course Lesson 6 15

16 ACTIVITY 6-4 The objective of this activity is to create inventory items. This is Mike s Photoshop s comprehensive price list. No. Code: Item: Group Pack code Cost Price list 1 Selling Price (excl) Price list 2 Price list 3 1 PHO001 2 PHO002 3 PHO003 4 PHO004 5 PHO005 6 PHO006 7 FRA001 8 FRA002 9 FRA FRA004 Individual Photos Standard Size Matt Individual Photos Standard Size Gloss Individual Photos A5 Matt Individual Photos A5 Gloss Individual Photos A4 Matt Individual Photos A4 Gloss Photo Frames Wooden Finish Std Photo Frames Specials All Sizes Silver Photo Frames A5 Silver Photo Frames A4 Silver MATT Ea GLOSS Ea MATT Ea GLOSS Ea MATT Ea GLOSS Ea FRA Ea FRA Ea FRA Ea FRA Ea Let us create inventory items now. 1. Go to any Inventory menu and select Inventory Items. 2. Click Add Lesson Evolution Practitioner Core Course

17 3. The following screen appears: 4. Complete the screen by entering the code in the Simple Code block followed by a detailed description in the Description 1 box. 5. Let us look at the option on the Item Type screen: Ensure that the Active box is ticked in the Item Type section. If the inventory item is a commissionable item, indicate it by ticking the box in the Item Type section as displayed in the screen above. This means that Sale Reps can earn commission on these items when sold to customers. By default any item is seen as a physical item. When creating a Service item,, tick the box in the Item Type screen. The rest of the screen is dependent on the specific add on module that needs to be registered on the system. They are: o o o Serial Number Tracking Warehousing Lot tracking i You can record serial numbers in one of the description boxes when creating the item. Evolution Practitioner Core Course Lesson 6 17

18 6. Click on the Information tab. The following screen appears: 7. Compete this screen by selecting the group, bin location, pack codes and bar codes where applicable. If only one option applies to the item leave the rest of the screen blank. In the Ordering Information Section you can specify the levels of items that need to be in stock at any given time. For Mike s Photoshop this will not apply yet, because his customers order on demand. In the Linked Supplier section you can link specific suppliers to the items being sold. Click on New to create a new supplier or click on Select to select the applicable supplier from the list that appears Lesson Evolution Practitioner Core Course

19 8. Click on the Pricing tab. The following screen appears: Set up the pricing structure for the item as follows: Remember to select the correct applicable costing method. This screen also allows you to structure markup percentages where necessary by ticking the box in the Markup Column and specifying the percentage in the Markup % column. 9. The Defaults tab details the general ledger accounts involved when processing the specific inventory item. 10. The Incident History tab details the incidents that were created with regard to the item. Evolution Practitioner Core Course Lesson 6 19

20 11. The Images tab gives you the opportunity to import a picture of the item. Click on Insert and browse to find the picture to insert. Click on the photo and click on Open.. The picture will be imported and click Save to save the changes. i Refer to the data disc for pictures to import. 12. Click OK when you have completed all the relevant information pertaining to the item. 13. Create the rest of the inventory items. For more assistance ask your facilitator or trainer Lesson Evolution Practitioner Core Course

21 CREATE LOT TRACKING STATUS Pastel Evolution has 4 default lot tracking statuses, namely: 1. Not Approved 2. Approved 3. Rejected 4. Expired If you wish to create additional lot tracking statuses, follow the next process: 1. Select Lot Tracking Status from any Inventory menu. 2. Click Add. 3. The following screen will display: 4. Complete the screen. CREATE INVENTORY PACKS A pack code is useful to specify how your inventory items are packaged e.g. Dozen. You will then be able to calculate values based on these pack sizes on your documents and reports. E.g. 24 items or 2 Dozen items. This section of the lesson will be demonstrated by means of the following activity: ACTIVITY 6 5 The objective of this activity is to create inventory packs. Mike has the following pack code: Code Ea Description Each Size 1 PK001 Pack of 2 A5 Silver Frames 2 PK002 Pack of A5 and A4 Silver Frames 2 i Mike s Photoshop does not really require packs at this stage. 1. Select Packs s from any Inventory menu. 2. Click Add. Evolution Practitioner Core Course Lesson 6 21

22 3. Complete the following screen with the information supplied. 4. Click OK. NAME PRICE LISTS This section of the lesson will be demonstrated by means of the following activity: ACTIVITY 6-6 The objective of this activity is to name price lists. Mike has the following price lists: Create the abovementioned lists by going to any Inventory menu Maintenance click on Pricelist names and then select Add. Name the price lists as depicted in the screen above Lesson Evolution Practitioner Core Course

23 CREATE TRANSACTION TYPES When entries are posted throughout Pastel Evolution, the system needs to default certain processes. This includes the posting of the entries to the General Ledger and to the particular Module. The correct set-up of these transaction types is vital to ensuring that the actual processing of the transactions becomes a simple task for the data capturer without having to have an understanding of the accounting processes that is occurring in the background. This section of the lesson will be covered by means of the following activity: ACTIVITY 6-7 The objective of this activity is to edit and/or create transaction types. 1. Select Transaction Types from any menu. 2. The following screen will appear, listing the default transaction types of the system. 3. For this activity, highlight transaction type INV (Invoice). 4. Right click and select Edit, now you can change the name of the transaction type. Evolution Practitioner Core Course Lesson 6 23

24 5. The following screen displays: 6. Highlight the description Invoicing and change the name to Invoicing Inventory. 7. The following table contains guidelines with regard to the different areas that needs to be completed on this screen: Option Description Debit / Credit Link another Transaction Type Other - Tax Other Rep Explanation This is the description that Pastel Evolution will default to each time that the INV transaction is selected. This specifies how the transaction must appear on the Supplier statement e.g. an invoice will be a debit and a receipt will be a credit. This option is selected when one transaction results in two General Ledger transactions e.g. when a payment is made to the supplier and received a discount at the same time, you will link the discount transaction to the payment transaction You will need to activate the tax option and (optionally) also specify the default tax type for this transaction type. By defaulting the tax type, you reduce the risk of the agent selecting the incorrect tax type and thereby affecting the standard Tax report resulting in incorrect Tax reporting to the Authorities. This is greyed out because Sales Reps are not applicable to this module Lesson Evolution Practitioner Core Course

25 Option Debit/Credit Ledger Accounts Debit Tax Account Always Prompt for Debit Ledger Account Always split Debit Ledger Accounts Explanation With transaction types the debit / credit refers to the relevant control account on that module. So with inventory you must specify whether the stock / inventory account will be debited or credited as well as specify the correct control account. The tax account now needs to be selected. Only the tax portion of the transaction will be posted to this account. Usually and by default here, you will select the Vat Control account. Can be activated if you wish to specify the contra GL account each time that the transaction is posted. Pastel Evolution will default to the second GL account specified above but will allow you to change it on processing. When you are prompted for the GL account, you will also have an option to split the GL side. The always split option will always prompt you for the Split General Ledger accounts when the transaction is posted. 8. Highlight the area that needs editing, change it and click OK to save the changes. 9. To add a new transaction type, click on Add and a blank screen will display. Complete the screen with the information for the transaction type and click OK to save the addition. i It is recommended that you rather copy a similar transaction type and edit the information applicable to the new transaction type. This will ensure that when you process transactions that it will feed the information to the correct accounts. Evolution Practitioner Core Course Lesson 6 25

26 SUMMARY In this lesson we generated the master files for the Inventory Module. Here are some learning points to reflect on: If the correct value of the stock purchased is known at the time of processing the GRV there will be no difference posted in the General Ledger. When you did not set all the required defaults the system will prompt you to go back and complete it. Creating different types of Master Accounts such as Groups, Inventory items, packs, lot tracking statuses, price lists and so on. Remember that a lot of add on modules are linked to the Inventory module, thus, whenever you have a screen that is greyed out, you know you require a add on module to make use of those functions. You do not need to create pack codes, bin locations, groups etc. if your business does not require it.? FORMATIVE ASSESSMENT Answer the following questions: 1. What is the difference between physical and service stock items? 2. What are pack orders? 3. Explain the different types of costing methods? [15 marks] The solution is available on the data disc Lesson Evolution Practitioner Core Course