Month End Inventory Journal

Overview#

In BOS Enterprise, you can select to keep your inventory separate and not integrate it to the Ledger. We typically recommend this option because it prevents thousands of inventory movement entries from being generated in your ledger.

However, in this case, purchases are posted to Accrual Accounts. It is necessary to clear these accounts once a month and to transfer the balances to inventory or Cost of Sales. 

💡This tutorial explains a simplified version of creating these journal entries. This simplified example only records Purchases or Cost of Sales as a single entry. For purposes of this tutorial, we have used random amounts to help you understand the journal entry.

Step 1: Note the Accrual Balances#

1. Navigate to the Financial Statements Dashboard (Main Menu > Accounting > Financial Statements > Menu (button) > Dashboard).
2. Select Month next to Set and click View (button).
3. Adjust the dates using the arrow keys if you want to see the previous month's balances.
4. On the Accruals tab, note down all the accrual accounts that have amounts in them.
5. For example:
   • Accrued Liabilities – Accrual – Inventory = R1 215 597.42
   • Accrued Liabilities – Accrual – Purchases = R118 660.95

Step 2: Note the Value of Inventory as per the Inventory Report#

1. Navigate to the Inventory Report (Main Menu > Reports > Inventory).
2. Select This month or Last month next to Date (whichever applies).
3. Click View (button).
4. The report has three sections:
   1. Opening Balances
   2. Movement
   3. Closing Balances
5. Make a note of the Value in the Closing Balance section. This amount is the value of your inventory on hand and should be recorded as such in your Statement of Financial Position. (For example, R256 123.58).
6. Optional: If you would like to split your inventory, you can filter the report by Category (e.g. Finished Goods, Raw Materials) and record the individual amounts. As long as all the amounts add up to the Closing Balance. For example:
   1. Finished Goods = R42 128.36
   2. Raw Materials = R210 285.44
   3. Work in Progress = R3 709.78

Step 3: Note the Value of Inventory as per the Ledger#

1. Navigate to the Financial Statements > Statement of Financial Position (Main Menu > Accounting > Financial Statements > Menu (button) > Statement of Financial Position).
2. Select Month next to Set and click View (button).
3. If the decimals are hidden, click Menu (button) and uncheck Hide Decimal Values.
4. Make a note of all your inventory accounts under the Inventory heading.
5. For example:
   1. Finished Goods = R32 580.23
   2. Raw Materials = R84 367.28
   3. Work in Progress = R88 236.58
   4. Total = R205 184.09

Step 4: Calculate the Inventory Movements#

1. Subtract the amounts calculated in Step 2 from the corresponding amounts in the ledger as recorded in Step 3.
2. For example:
   1. Finished Goods: R42 128.36 – R32 580.23 = R9 548,13
      • Finished goods have increased, so this account is debited.
      • Debit adds the amount to the existing amount.
   2. Raw Materials: R210 285.44 – R84 367.28 = R125 918.16
      • Raw materials have increased, so this account is debited.
   3. Work in Progress: R3 709.78 – R88 236.58 = R-84 526.8
      • Work in progress has decreased, so this account is credited.
      • Credit deducts the amount from the existing amount.
   4. Total: R256 123.58 – R205 184.09 = R50 939.49
      • The overall stock has increased, so this account is debited.
      • Note: You record either the values in Steps 1–3 or the value in Step 4.

Step 5: Create a Journal Entry#

1. Navigate to the Ledger (Main Menu > Accounting > Ledger).
2. Click New (button) and select General Journal (GJ) from the list.
3. Date = Enter the last day of the applicable month.
4. Period = Enter the last day of the applicable month.
5. Amount = Filled in automatically after steps 7–9.
6. VAT = No VAT.
7. Fill in the first item as follows:
   1. Description = Month End Stock Adjustment.
   2. Credit = Enter the name of your first accrual account (e.g. Accrued Liabilities – Accrual – Inventory).
   3. Total (exc) = Enter the value of your first accrual account (e.g. A = 1 215 597.42).
8. Click Add Item (button) and repeat Step 7 until all your accrual accounts are entered.
9. Click Add Item (button) and record your inventory movements, one line each, as follows:
   1. Description = Month End Stock Adjustment.
   2. Debit / Credit = Enter the name of your first inventory account (e.g. Inventory Finished Goods). Enter the name in the Debit column if the amount must be debited. Enter the name in the Credit column if the account must be credited.
   3. Total (exc) = Enter the value of your inventory as calculated in Step 4 (e.g. R9 548.13).
10. Click Save (button).
11. The top of the list of items shows a Dr amount and a Cr amount. Calculate the difference between the amounts (e.g. Cr total – Dr total).
12. Click Add Item (button) and record the Cost of Sales entry as follows:
    1. Description = Month End Stock Adjustment.
    2. Debit = Select your Purchases or Cost of Sales Expense Account.
    3. Total (exc) = Enter the value that you calculated in Step 11.
    4. Click Save (button).
    5. Click Done (button).

Example Journal Entry where the Stock is not split#

Example Journal Entry where the Stock is split#

Step 6: Check the Entries#

1. Repeat Step 1 to verify that your accrual accounts are zero.
2. Repeat Step 3 to verify that the amounts now match those in Step 2.