Inventory difference account
Inventory difference is meant for differences deriving from the inventory. Inventory value includes all expenses related to bringing the goods into the warehouse.
Here we can take transport cost as an example. In the first case, the inventory value can be equal to the subtotal. This happens when the transport cost is added to the invoice. Here, you have to select all your products on the purchase invoice-waybill and you also have to add the transport row to make the TOTAL cell correct.
- Inventory Value (NET+COSTS) = subtotal
Created entries:
D: Inventory (subtotal)
D: VAT (total-subtotal)
C: Requirements to suppliers (total)
If the transport row is added, then the inventory value will be smaller than the subtotal because transport is not included in the inventory price. In Erply Inventory, you can specify if the product is a non-stock product or service or not. If the product is marked as a non-stock product or service, then it does not include inventory value. As transport cost is a non-stock product/service, we can see in the picture below that transport is not included in the inventory and the NET+COSTS value is less than the NET value. In Erply Inventory, setting up the product as non-stock or a service can be done on the product card:
Open the product search:
Search for the product and press on the document icon behind the name:
In the window that opens, tick the non-stock product or service box:
Now the next step is to move the transport cost under the “Additional costs”, and then the inventory value (net+costs) will be equal to the NET value. You can find the “Additional costs” fiel in the left menu panel:
The second situation can occur when the:
2) Inventory Value < subtotal
Created entries:
D: Inventory (Inventory Value)
D: Some cost (subtotal – Inventory Value)
D: VAT (total – subtotal)
C: Requirements to supplier (total)
3) Inventory Value > Subtotal
This applies when the transport cost is sent as a separate invoice. For example, products enter the warehouse at a cost of 100€ and the transport costs 20€. The transport cost has to be sent as a separate invoice because if the transport is on the same invoice, then the invoice NET value would be 120€ and the inventory value is equal to the NET value. Therefore, this is the first situation (described above, point 1).
When the goods are accounted for in the warehouse, all products must be added on the purchase invoice-waybill to make the TOTAL value correct. If the transport invoice is sent at the end of the month, then you need to open the purchase invoice again and add the transport cost in the “Additional costs” field.
The same situation can occur when a purchase credit is made and the refund goes out with the FIFO method.
3.1)
If the “Inventory difference account” is defined:
D: Inventory (Inventory Value)
D: Inventory difference account (subtotal-Inventory Value)
D: VAT (total – subtotal)
K: Requirements to supplier (total)
In this case, you need to select the “Inventory difference account” for the additional cost purchase invoice. If the subtotal is subtracted from the inventory value, then the final value is negative so it is taken with a debit to the inventory difference account and the inventory difference account goes to zero. Never select the transport expense account on a transport invoice!
3.2)
When “Inventory difference account” is not defined:
D: Inventory (subtotal)
D: VAT (total-subtotal)
K: Requirements to supplier (total)
In this case, you need to select “Inventory account” for the additional cost purchase invoice. Never select the transport expense account on a transport invoice because if you do, then the inventory value will be bigger than the subtotal and when you sell the goods, it will go under the cost of goods in the inventory value not in the NET value > the cost is incurred twice.
This is why “Additional costs” should be added in both cases: when the inventory value is equal to the subtotal (point 1) or when the inventory value is bigger than the subtotal value (point 3).