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User
kaylee
Posts: 2
Registered: ‎22-07-2012
New Zealand
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Cost of sales adjustment?

Hi there, I am new to this board, I have searched and can't seem to find a similar problem.  I bought some more stock this month and  entered it into my inventory.  Now when I do the end of month figures, I notice I have hundreds of 'cost of sales adjustments' they seem to go back to when I first started the company. Even though they have credis and debits, they do not equal so have affected my cost of sales total.  Has anyone had this happen before and how can I get rid of it?  Please can anyone help, this is driving me crazy??  Thanks

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Ultimate Partner
Clive
Posts: 3,277
Registered: ‎11-01-2007
Australia
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Re: Cost of sales adjustment?

Hi

 

If you are using Standard Cost for your inventory there will be entries for the difference between the actual cost of the goods and the standard cost.  Whebn you sell goods the cost of them is removed from inventory and allocated to cost of sales.

 

Regards

Clive Williams

MYOB Certified Consultant & Accredited Trainer; Ostendo Consulting Partner
Cert IV Financial Services (Bookkeeping); Cert IV Training & Assessment; BAS Agent 92620 006
Providing on-site MYOB support in Sydney, the Blue Mountains and Hawkesbury
Remote support available for MYOB throughout Australia
Mobile: 0418.657.833 AH (02) 4754.4151
email: clive@crwservices.com.au website: www.crwservices.com.au
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Ultimate Partner
Mike_James
Posts: 2,415
Registered: ‎08-05-2007
New Zealand

Re: Cost of sales adjustment?

My take on this question would be as follows.

 

MYOB has been designed to value inventory at average cost. In recent versions an option was added in preferences to allow purchases to be created using the item's standard cost field, but the valuation basis (average cost) has not changed.

 

The cost of sale adjustment entries that you are seeing are created automatically by MYOB whenever the cost of sale that it calculates on any invoice line is deemed to be provisional. The cost of sale will be provisional if, at the time the sales invoice is first recorded, either (a) the current stock on hand, or part of it, is based upon an item receipt which has not yet been converted to a bill, or (b) the current stock on hand is negative (Premier enterprise is the only version of AccountRight which will permit this).

 

In the first case, MYOB will use one of the following cost amounts to calculate a cost of sale, in order of priority: 

- the purchase cost on the item receipt,

- the item's last purchase cost,

- the item's standard cost

- if none of the above exist, zero.

 

When a bill is created for the stock which has been sold, which determines the actual cost of the purchase, MYOB will calculate one or more cost of sale adjustments to bring the value of stock on hand back to the value that would have been left if the bill had been recorded first. These adjustments are recorded as inventory journals, with the memo field containing a reference to the invoice (and the database contains a link to the sale line).

 

In the second case, MYOB will use one of the following cost amounts to calculate the cost of sale, in order of priority:

- the item's last purchase cost,

- the items standard cost

- if none of the above exist, zero.

 

When one or more bills have been created to bring the stock on hand figure back into positive, MYOB will similarly calculate one or more cost of sale adjustments to bring the value of stock on hand back to the value that would have been left if the bills have been recorded prior to the sale.

 

The testing that I have done in the past on these calculations suggests that they arrive at the right answer, but one issue is that because the adjustments are inventory journals, the standard gross margin reports in MYOB do not include these adjustments. I have recently extended a gross margin report for a client to include these adjustments, and I will be making this change across all our custom gross margin reports.

 

Without changing your entire business process, it is hard to prevent these transactions from occurring, so there is probably a net advantage in continuing your existing business process (eg sales order > purchase order > item receipt > sale > bill), whilst recognising that the standard gross margin reports will not be 100% accurate.

 

Are there any other particular issues that you have with these adjustments?

 

 

Regards Mike (mike@datawise.co.nz)
DataWise Limited (www.datawise.co.nz), developers of:
DataWise ProActive - Multi-user cross-platform sales management add-on
DataWise Report Writer - Specialised Reporting from MYOB programs
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Cover User
Hassan
Posts: 1
Registered: ‎21-06-2013
Australia
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Re: Cost of sales adjustment?

HI Mike,

 

Your answer is very helpful in understanding provisional concept of cost of sales and the auto adjusment to cost of sales entries but in our case the adjustment entry to bring the value back to where that would have been left, had the bill been recorded first has not gone through again. As a result, the gross profit margin for that item is almost 100%. Can you understand why?

 

To explain it more, there has been cost of sale adjustment entries for 5 invoices in one date overstating profit by almost $39000 and these have not reversed in the later dates when i had entered supplier's bill for already receive items.  

 

I have checked inventory journal since those entries and there has been other regular cost of sale adjustment entries but for very minor amounts (only 1-2 dollars or few in cents) which would not really worry us but the one that i have mentioned above have a very significant effect on the profit. so we are not sure of how to fix it, can you please suggest a solution?

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MYOB Moderator
Liam_M
Posts: 1,653
Registered: ‎19-01-2012
Australia

Re: Cost of sales adjustment?

Hello Hassan,

 

AccountRight will only record a cost of sales adjustment where sold inventory recorded using a receive items transaction is eventually billed at a different rate. If the item is billed at the same rate that was boringly recorded on the receive item transaction (or the item was simply recorded as a bill with no receive item transaction involved) then no automatic inventory adjustment is recorded at all.

 

The only Cost of Sales record that would appear in this case would be the cost of sales component of the sale. This will always be the average cost. This is calculated by dividing the current value by the quantity on hand. The current value is updated with every purchase or receive item transaction, by adding in the total purchase cost of the item rom that purchase.

If the cost of sales component of a sale has been incorrect then the current value of the item would have been incorrect. You can check the current dollar value of an item by going into the item list and clicking into the item. View the current value here. This is used to calculate the average cost (which you can also see here). If the current value is wrong the wrong cost will appear on sales. You can adjust your average value using an inventory adjustment. as per this support note:

http://myobaustralia.custhelp.com/app/answers/detail/a_id/9165

To track down the cause of an incorrect inventory value run the 'Items Register [Detail]' report for that item.

Kind Regards

Liam
MYOB Client Support


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