brotherton-erpnext/docs/docs.user.stock.perpetual_inventory.md

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Perpetual Inventory

In perpetual inventory, system creates accounting entries for each stock transactions, so that stock and account balance will always remain same. The account balance will be posted against their respective account heads for each Warehouse. On saving of a Warehouse, the system will automatically create an account head with the same name as warehouse. As account balance is maintained for each Warehouse, you should create Warehouses, based on the type of items (Current / Fixed Assets) it stores.

At the time of items received in a particular warehouse, the balance of asset account (linked to that warehouse) will be increased. Similarly when you deliver some items from that warehouse, an expense will be booked and the asset account will be reduced, based on the valuation amount of those items.

Activation

1. Setup the following default accounts for each Company

   • Stock Received But Not Billed
   • Stock Adjustment Account
   • Expenses Included In Valuation
   • Cost Center

2. In perpetual inventory, the system will maintain seperate account balance for each warehouse under separate account head. To create that account head, enter "Create Account Under" in Warehouse master.

3. Activate Perpetual Inventory

Setup > Accounts Settings > Make Accounting Entry For Every Stock Movement

Example

Consider following Chart of Accounts and Warehouse setup for your company:

Chart of Accounts

• Assets (Dr)
  • Current Assets
    • Accounts Receivable
      • Jane Doe
    • Stock Assets
      • Stores
      • Finished Goods
      • Work In Progress
    • Tax Assets
      • VAT
  • Fixed Assets
    • Fixed Asset Warehouse
• Liabilities (Cr)
  • Current Liabilities
    • Accounts Payable
      • East Wind Inc.
    • Stock Liabilities
      • Stock Received But Not Billed
    • Tax Liabilities
      • Service Tax
• Income (Cr)
  • Direct Income
    • Sales Account
• Expenses (Dr)
  • Direct Expenses
    • Stock Expenses
      • Cost of Goods Sold
      • Expenses Included In Valuation
      • Stock Adjustment
      • Shipping Charges
      • Customs Duty

Warehouse - Account Configuration

• Stores
• Work In Progress
• Finished Goods
• Fixed Asset Warehouse

Purchase Receipt

Suppose you have purchased 10 nos of item "RM0001" at $200 and 5 nos of item "Desktop" at $100 from supplier "East Wind Inc". Following are the details of Purchase Receipt:

Supplier: East Wind Inc.

Items:

Item	Warehouse	Qty	Rate	Amount	Valuation Amount
RM0001	Stores	10	200	2000	2200
Desktop	Fixed Asset Warehouse	5	100	500	550

Taxes:

Account	Amount	Category
Shipping Charges	100	Total and Valuation
VAT	120	Total
Customs Duty	150	Valuation

Stock Ledger

General Ledger

As stock balance increases through Purchase Receipt, "Store" and "Fixed Asset Warehouse" accounts are debited and a temporary account "Stock Receipt But Not Billed" account is credited, to maintain double entry accounting system.

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Purchase Invoice

On receiving Bill from supplier, for the above Purchase Receipt, you will make Purchase Invoice for the same. The general ledger entries are as follows:

General Ledger

Here "Stock Received But Not Billed" account is debited and nullified the effect of Purchase Receipt. "Expenses Included In Valuation" account has been credited which ensures the valuation expense accounts are not booked (debited) twice (in Purchase Invoice and Delivery Note).

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Delivery Note

Lets say, you have an order from "Jane Doe" to deliver 5 nos of item "RM0001" at $300. Following are the details of Delivery Note:

Customer: Jane Doe

Items:

Item	Warehouse	Qty	Rate	Amount
RM0001	Stores	5	300	1500

Taxes:

Account	Amount
Service Tax	150
VAT	100

Stock Ledger

General Ledger

As item is delivered from "Stores" warehouse, "Stores" account is credited and equal amount is debited to the expense account "Cost of Goods Sold". The debit/credit amount is equal to the total valuation amount (buying cost) of the selling items. And valuation amount is calculated based on your prefferred valuation method (FIFO / Moving Average) or actual cost of serialized items.

	
In this example, we have considered valuation method as FIFO. 
Valuation Rate 	= Purchase Rate + Charges Included in Valuation 
				= 200 + (250 * (2000 / 2500) / 10) 
				= 220
Total Valuation Amount 	= 220 * 5 
						= 1100
	

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Sales Invoice with Update Stock

Lets say, you did not make Delivery Note against the above order and instead you have made Sales Invoice directly, with "Update Stock" options. The details of the Sales Invoice are same as the above Delivery Note.

Stock Ledger

General Ledger

Here, apart from normal account entries for invoice, "Stores" and "Cost of Goods Sold" accounts are also affected based on the valuation amount.

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Stock Entry (Material Receipt)

Items:

Item	Target Warehouse	Qty	Rate	Amount
RM0001	Stores	50	220	11000

Stock Ledger

General Ledger

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Stock Entry (Material Issue)

Items:

Item	Source Warehouse	Qty	Rate	Amount
RM0001	Stores	10	220	2200

Stock Ledger

General Ledger

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Stock Entry (Material Transfer)

Items:

Item	Source Warehouse	Target Warehouse	Qty	Rate	Amount
RM0001	Stores	Work In Progress	10	220	2200

Stock Ledger

General Ledger

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Stock Entry (Sales Return - Sales Invoice booked)

Items:

Item	Target Warehouse	Qty	Rate	Amount
RM0001	Stores	2	200	400

Stock Ledger

General Ledger

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Stock Entry (Purchase Return)

Items:

Item	Source Warehouse	Qty	Rate	Amount
RM0001	Stores	4	220	880

Stock Ledger

General Ledger