Best practices for transaction workflows that impact inventory

To create and process transactions with inventory items in Order Entry, Purchasing, and Inventory Control, you must have a workflow installed in each application. Your workflow determines the types of transactions that users can create, how those transactions flow through Sage Intacct, and the back-end accounting that happens as a result of each transaction.

When transactions impact inventory, you will see fewer discrepancies in the inventory valuation if you follow these guidelines.

Example of Order Entry workflow

The following table provides an example of an Order Entry workflow that follows the above guidelines to keep valuation intact.

Transaction definition	Inventory effect	Transaction posting	Converted from	Create policy
Sales Order	Increases ONHOLD quantity	Do not post	not applicable	New document or convert
Shipper	Decreases ONHAND quantity and value This transaction definition typically debits a cost of goods sold account and credits inventory. Sage Intacct automatically reduces the ONHOLD quantity. And, any time you impact value in Order Entry, Sage Intacct automatically posts to the Inventory account in the General Ledger.	Do not post	Sales Order	Convert only
Sales invoice	No effect on inventory quantities This transaction definition debits the appropriate Accounts Receivable accounts and credits the appropriate Sales or Revenue accounts.	Posts to AR	Shipper	Convert only
Sales Return	Increases ONHAND quantity and value This transaction definition typically has the reverse effect of the Shipper. It debits inventory and credits cost of goods sold. Any time you impact value in Order Entry, Sage Intacct automatically posts to the Inventory account in the General Ledger.	Do not post	Sales invoice	Convert only
Credit Memo	No effect on inventory quantities This transaction definition debits the appropriate Sales or Revenue accounts and credits the appropriate Account Receivable accounts.	Posts to AR	Sales Return	Convert only
Close-out Sales Order	Decreases ONHOLD quantity This transaction definition lets you close any Sales Orders that become obsolete or will no longer be used.	Do not post	Sales Order	Convert only

How the example Order Entry workflow works in practice

For the explanation of how the example workflow works, assume that you have an item that has 8 quantity on hand. Its cost method is FIFO and here are the costing layers:

Costing layer	Qty	Unit cost	Value
1	5	10.00	50.00
2	1	11.50	11.50
3	2	11.00	22.00

Now let's look at what happens when you sell some of the quantity.

1. You create a Sales Order to sell 7 of the 8 quantity. The price of each item is 17.00 for a total value of 119.00.

   Assuming that there was no quantity on hold for the item, the quantity on hold increases to 7.

2. You convert the Sales Order to the Shipper and send all 7 quantity that was ordered.

   Sage Intacct decreases the quantity on hand by 7 and automatically decreases the quantity on hold by 7. The cost of the sold items is 72.50 (5 quantity at 10.00 for cost of 50.00, 1 quantity at 11.50 for cost of 11.50, and 1 quantity at 11.00 for a cost of 11.00).

3. You run a Journal report. It shows that the 72.50 for the 3 costing tiers was debited to the COGS account and credited to the Inventory account.

4. You run an Inventory Valuation report. It shows that the item has a quantity of 1 at a unit cost of 11.00. The cost in the last costing layer.

5. You convert the Shipper into a Sales invoice. The Accounts Receivable account is debited 119.00, and the Revenue account is credited 119.00.

6. The customer returns 3 of the 7 quantity so you convert the Sales invoice into a Sales Return, entering 3 as the quantity in the Sales Return.

7. You run a journal report. The inventory account is debited 32.50 and the COGS account is credited 32.50.

   Because the Sales Return is linked to the Sales invoice, the costs are correctly managed according to the costing layers. Sage Intacct goes back in the FIFO order to get the 3 quantity returned—1 quantity at 10.00 in the 1st layer, 1 quantity at 11.50 in the second layer, and 1 quantity at 10.00 in the 3rd layer. The total of those amounts (11.00, 11.50, and 10.00) is 32.50.

8. You run an Inventory Valuation report. It shows 4 lines for the item and the total value for the item as 43.50.

   Transaction	Date	Qty	Unit cost	Value
   PO Receiver (for item in 3rd cost layer	January 20	1	11.00	11.00
   Sales Return--201 (for item in 1st cost layer)	February 10	1	10.00	10.00
   Sales Return--201 (for item in 2nd cost layer)	February 10	1	11.50	11.50
   Sales Return--201 (for item in 3rd cost layer.	February 10	1	11.00	11.00

   Had you not created the Sales Return from the Sales invoice, 3 quantity at a unit cost of 10.00 for a total value of 30.00 would have been returned to inventory, which is not correct.

9. You convert the Sales Return into a Credit Memo, which debits the Revenue account by 51.00 and credits the Accounts Receivable account by 51.00. These entries make the accounting records reflect the value of the sale as 68.00 (4 quantity sold at a price of 17.00).

Example of Purchase workflow—Option 1

The following table provides an example of a Purchasing workflow that follows the above guidelines to keep valuation intact. This option assumes that you receive the vendor invoice when you receive the goods.

Transaction definition	Inventory effect	Transaction posting	Converted from	Create policy
Purchase Order	Increases ONORDER quantity	Do not post	Not applicable	New document or convert
Receiver	No effect on inventory quantities Because you are impacting quantity and value on the Vendor invoice, you could skip this transaction definition entirely.	Do not post	Purchase Order	Convert only
Vendor invoice	Increases ONHAND quantity and value Sage Intacct automatically reduces the ONORDER quantity. This transaction definition debits the appropriate Inventory accounts and credits the appropriate Accounts Payable accounts.	Posts to AP	Receiver	Convert only
Purchase Return	Decreases ONHAND quantity and value This transaction definition typically debits a deferred asset account and credits the appropriate Inventory accounts.	Posts to GL	Vendor invoice	Convert only
Debit Memo	No effect on inventory quantities This transaction definition typically debits the appropriate Accounts Payable accounts and credits a deferred asset account.	Posts to AP	Purchase Return	Convert only
Close-out Purchase Order	Decreases ONORDER quantity This transaction definition lets you close any Purchase Orders that become obsolete or will no longer be used.	Do not post	Purchase Order	Convert only

How the example Purchasing Option 1 workflow works in practice

Let's look at what happens as you go through this workflow to purchase quantity for an inventory item.

1. You create a Purchase Order to buy a quantity of 10. The unit price is 100.00 for a total value of 1,000.00.

   Assuming that there was no quantity on order for the item, the quantity on order increases to 10.

2. You receive the quantity of 10 that you ordered and convert the Purchase Order to a Receiver.

   The Receiver has no impact on inventory and does not post.

3. Next, you convert the Receiver to a Vendor invoice.

   Sage Intacct increases the quantity on hand by 10 and automatically reduces the quantity on order by 10. The appropriate Inventory accounts are debited for a total of 1,000.00, and the Accounts Payable account is credited 1,000.00.

4. You run an Inventory Valuation report. It shows that the item has a quantity of 10 at a unit cost of 100.00 for a total value of 1,000.00.

5. You decide to return 2 quantity back to the vendor.

6. You convert the Vendor invoice into a Purchase Return for a quantity of 2.

   Sage Intacct reduces the quantity on hand by 2 and adjusts the value.

7. You run an Inventory Valuation report. It shows that quantity for the item is 8 at a unit cost of 100.00 for a total value of 800.

   Transaction	Date	Qty	Unit cost	Value
   Vendor invoice--145	January 20	8	100.00	800.00

8. You convert the Purchase Return into a Debit Memo.

   The Accounts Payable account is debited 200.00 and the deferred asset account is for a total of 200.00. This makes account records reflect the value of the purchase as 800.00.

Example of Purchase workflow—Option 2

The following table provides an example of a Purchasing workflow that follows the above guidelines to keep valuation intact. This option assumes that you receive the vendor invoice after you receive the goods.

If there's a price difference from the Receiver to the Vendor invoice, you need to do an inventory value-only transaction adjustment.

Transaction definition	Inventory effect	Transaction posting	Converted from	Create policy
Purchase Order	Increases ONORDER quantity	Do not post	Not applicable	New document or convert
Receiver	Increases ONHAND quantity and value Sage Intacct automatically reduces the ONORDER quantity. This transaction definition debits Inventory and credits GRNI (goods received not invoiced).	Posts to GL	Purchase Order	Convert only
Vendor invoice	No effect on inventory quantities This transaction definition debits GRNI and credits Accounts Payable.	Posts to AP	Receiver	Convert only
Purchase Return	Decreases ONHAND quantity and value This transaction definition typically debits a deferred asset account and credits the appropriate Inventory accounts.	Posts to GL	Vendor invoice	Convert only
Debit Memo	No effect on inventory quantities This transaction definition typically debits the appropriate Accounts Payable accounts and credits a deferred asset account.	Posts to AP	Purchase Return	Convert only
Close-out Purchase Order	Decreases ONORDER quantity This transaction definition lets you close any Purchase Orders that become obsolete or will no longer be used.	Do not post	Purchase Order	Convert only

How the example Purchasing Option 2 workflow works in practice

Let's look at what happens as you go through the workflow to purchase quantity for an inventory item.

1. You create a Purchase Order to buy 10 quantity. The unit cost for each item is 100.00 for a total value of 1,000.00.

   Assuming that there was no quantity on order for the item, the quantity on order increases to 10.

2. You receive the quantity of 10 that you ordered and convert the Purchase Order to a Receiver.

   Sage Intacct increases the quantity on hand by 10 and automatically reduces the quantity on order by 10. The appropriate Inventory accounts are debited for a total of 1,000.00, and the GRNI (goods received not invoiced) account is credited 1,000.00.

3. You run an Inventory Valuation report. It shows that the item has a quantity of 10 at a unit cost of 100.00 for a total value of 1,000.00.

   Transaction	Date	Qty	Unit cost	Value
   Receiver-222	January 20	10	100.00	1,000.00

4. You receive the invoice from the vendor. So you convert the Receiver to a Vendor invoice.

   The GRNI account is debited 1,000.00, and the Accounts Payable account is credited 1,000.00.

5. You decide to return 2 quantity back to the vendor.

6. You convert the Vendor invoice into a Purchase Return for a quantity of 2.

   Sage Intacct reduces the quantity on hand by 2 and adjusts the value.

7. You run an Inventory Valuation report. It shows that quantity for the item is 8 at a unit cost of 100.00 for a total value of 800.

   Transaction	Date	Qty	Unit cost	Value
   Receiver-222	January 20	8	100.00	800.00

8. You convert the Purchase Return into a Credit Memo.

   The Accounts Payable account is debited 200.00 and the appropriate Inventory accounts are credited for a total of 200.00. This makes account records reflect the value of the purchase as 800.00.

How to correct price differences between the Vendor invoice and Receiver

After you receive the goods and later receive the invoice from the vendor, the price might be different. Inventory is not automatically updated with the new cost. To update the costs, you can create a value-only inventory adjustment and link it to the vendor invoice.

The following table shows the 2 inventory adjustment transactions that you want so that you increase or decrease amounts:

Transaction definition	Inventory effect	Transaction posting	Converted from	Create policy
Adjustment Decrease Value	Decreases ONHAND value	Posts to GL	Not applicable	New document or convert
Adjustment Increase Value	Increases ONHAND value	Posts to GL	Not applicable	New document or convert

In the previous example, assume that the invoice from the vendor had a unit price of 105.00 and not the 100.00 that was on the Receiver. Also assume that you did not return any quantity. You can follow these steps to update the inventory costs:

1. Determine the difference between the price on the Vendor invoice and the Receiver. In this case, the difference 105.00 minus 100.00, which is 5.00.

   Because the difference is positive, you'll create an Adjustment Increase Value transaction.

2. Go to Inventory Control> All > Transactions and select Add (circle) next to Adjust Increase Value.

3. From the Link to existing transaction to adjust dropdown, select the Receiver transaction (Receiver-222).

4. In the Entries section for the item, enter the existing quantity of 10 in the Quantity field and enter 5.00 in the Cost field.

5. Select Post.

6. Run an Inventory Valuation report. For the Receiver, the unit cost of the item is increased to 105.00 and the total value to 1,050.00.

   Transaction	Date	Qty	Unit cost	Value
   Receiver-222	January 20	10	105.00	1,050.00