ANSWER ID:9179

In a manufacturing environment work is often sent off-site for further value adding. Under a Perpetual Inventory System a need arises to remove stock sent off-site from the normal trading stock. This support note explains the steps required to track stock sent off-site.

Example

Assume in our example that XYZ Seafood buys and sells bulk fish. Occasionally they will send some excess fish off-site to be canned at a local manufacturing plant. The tinned fish is then on sold to nearby supermarkets. In one instance the business had an excess of Green Fin Tuna. XYZ Seafood sends 5 crates of tuna off-site for processing and receives 625 tins in return.

How do I remove stock sent off-site from normal trading stock and reflect this in the balance sheet?

Task 1 - Set up a dedicated asset account for tracking stock off-site

1. Go to the Accounts command centre and click Accounts List.
2. Click the Asset tab.
3. Click New and enter a unique account number that suits your account list.
4. Name the account Off-Site Stock and click OK. See our example below.
    

Task 2 - Set up inventory for off-site stock

Each line of inventory that is to be tracked off-site will require its own item number.

1. Go to the Inventory command centre and click Item List.
2. Click New to set up a new inventory item for the item being sent off-site. Use the same number as the existing trading stock item number, but precede it with the letter 'O'.
3. Select the options I Sell This Item and I Inventory This Item.
4. Make the asset account created in the previous step the Asset Account for Item Inventory for the O Item(s) in your Items List.
5. Make sure that the Income Account for Tracking Sales and the Cost of Sales Account are the same as those used for the trading stock item number. See our example below.
   

Task 3 - Run the Items List (Summary) report

1. Go to the Reports menu and choose Index to Reports.
2. Click the Inventory tab.
3. Click the Items List (Summary) report (under the Items sub-heading).
4. Click Display.
5. From the report, note the average cost of the trading stock item number.

Task 4 - Transferring stock

Record a Build Items transaction to move stock from trading stock to off-site stock:

1. Go to the Inventory command centre and click Build Items. Note: Build Items was called Transfer Inventory in older software versions.
2. In the first line, select the trading stock item and enter a negative quantity in the Quantity field.
3. In the second line, select the off-site stock item and enter the same value as a positive in the Quantity field.
4. Click Record. See our example below.
    

Task 5 - Return of off-site stock

When the off-site stock is returned, record a Build Items transaction to move the stock from off-site stock to trading stock.

1. Go to the Inventory command centre and click Build Items. Note: Build Items was called Transfer Inventory in older software versions.
2. In the first line, select the off-site stock item and enter a negative quantity in the Quantity field.
3. In the second line, select the trading stock item and enter the same value as a positive in the Quantity field. If the goods are returned in a different form such as for example Tinned Fish, make sure you select the item representing that particular stock.
4. Click Record. See our example below.
    

Note: Now that the stock has been returned to trading stock, it may require value to be added to it. Our support note Inventory value addinghas more information on this.

How do I enter opening stock off-site?

If you are working with a new company file, the opening balance for these items as at the time of conversion need to be reflected in your file. To do this:

1. Go to the Setup menu and choose Balances then choose Account Opening Balances.
2. Check that the stock off-site inventory asset account has a correct opening balance figure. The figure can be changed by clicking into the Opening Balance column and typing in the appropriate value.

In the case of an existing file where this is being implemented for the first time, you would record an Inventory Adjustment to update item quantities and values - see our example below. Assuming you've entered an opening balance for your inventory asset account, in each case, you would debit and credit the same linked inventory asset account.

Note: The linked Asset Account for Item Inventory as defined on the item's card has been selected in the Account field.