Author: Kiu Global

Every year your inventory valuation has to be recorded in your balance sheet. This implies two main choices:

• the way you compute the cost of your stored items (Standard vs. Average vs. Real Price);
• the way you record the inventory value into your books (periodic vs. Perpetual).

→ Costing Method

KIU allows any method. The default one is Standard Price. To change it, check Use a ‘Fixed’, ‘Real’ or ‘Average’ price costing method in Purchase settings. Then set the costing method from products’ internal categories. Categories show up in the Inventory tab of the product form.

Whatever the method is, KIU provides a full inventory valuation in Inventory ‣ Reports ‣ Inventory Valuation (i.e. current quantity in stock * cost price).

→ Periodic Inventory Valuation

In a periodic inventory valuation, goods reception and outgoing shipments have no direct impact in the accounting. At the end of the month or year, the accountant posts one journal entry representing the value of the physical inventory.

At the end of the month/year, your company does a physical inventory or just relies on the inventory in KIU to value the stock into your books.

Then you need to break down the purchase balance into both the inventory and the cost of goods sold using the following formula:

Cost of goods sold (COGS) = Starting inventory value + Purchases – Closing inventory value.

→ Perpetual Inventory Valuation

In a perpetual inventory valuation, goods receptions and outgoing shipments are posted in your books in real time. The books are therefore always up-to-date. This mode is dedicated to expert accountants and advanced users only. As opposed to periodic valuation, it requires some extra configuration & testing.

Every year your inventory valuation has to be recorded in your balance sheet. This implies two main choices:

• the way you compute the cost of your stored items (Standard vs. Average vs. Real Price);
• the way you record the inventory value into your books (periodic vs. Perpetual).

→ Costing Method

KIU allows any method. The default one is Standard Price. To change it, check Use a ‘Fixed’, ‘Real’ or ‘Average’ price costing method in Purchase settings. Then set the costing method from products’ internal categories. Categories show up in the Inventory tab of the product form.

Whatever the method is, KIU provides a full inventory valuation in Inventory ‣ Reports ‣ Inventory Valuation (i.e. current quantity in stock * cost price).

→ Periodic Inventory Valuation

In a periodic inventory valuation, goods reception and outgoing shipments have no direct impact in the accounting. At the end of the month or year, the accountant posts one journal entry representing the value of the physical inventory.

At the end of the month/year, your company does a physical inventory or just relies on the inventory in KIU to value the stock into your books.

Create a journal entry to move the stock variation value from your Profit & Loss section to your assets.

→ Perpetual Inventory Valuation

In a perpetual inventory valuation, goods receptions and outgoing shipments are posted in your books in real time. The books are therefore always up-to-date. This mode is dedicated to expert accountants and advanced users only. As opposed to periodic valuation, it requires some extra configuration & testing.

As stated in the *inventory valuation page*, one of the possible costing method you can use in perpetual stock valuation, is the average cost.

This document answers to one recurrent question for companies using that method to make their stock valuation: how does a shipping returned to its supplier impact the average cost and the accounting entries? This document is only for the specific use case of a perpetual valuation (as opposed to the periodic one) and in average price costing method (as opposed to standard of FIFO).

→ Definition of average cost

The average cost method calculates the cost of ending inventory and cost of goods sold on the basis of weighted average cost per unit of inventory.

The weighted average cost per unit is calculated using the following formula:

• When new products arrive in a warehouse, the new average cost is re-computed as:

• When products leave the warehouse: the average cost does not change

→ Defining the purchase price

The purchase price is estimated at the reception of the products (you might not have received the vendor bill yet) and reevaluated at the reception of the vendor bill. The purchase price includes the cost you pay for the products, but it may also includes additional costs, like landed costs.

• Average cost example:

At the beginning, the Avg Cost is set to 0 set as there is no product in the inventory. When the first reception is made, the average cost becomes logically the purchase price.

At the second reception, the average cost is updated because the total inventory value is now 80,000 + 4*16,000 = 144,000VND. As we have 12 units on hand, the average price per unit is 144,000 / 12 = 12,000VND.

By definition, the delivery of 10 products does not change the average cost. Indeed, the inventory value is now 24,000 VND as we have only 2 units remaining of each 24,000 / 2 = 12,000 VND.

• Purchase return use case

In case of a product returned to its supplier after reception, the inventory value is reduced using the average cost formulae (not at the initial price of these products!).

Which means that the above table will be updated as follow:

a. Explanation: counter example

Remember the definition of Average Cost, saying that we do not update the average cost of a product leaving the inventory. If you break this rule, you may lead to inconsistencies in your inventory.

As an example, here is the scenario when you deliver one piece to the customer and return the other one to your supplier (at the cost you purchased it). Here is the operation:

As you can see in this example, this is not correct: an inventory valuation of 2,000 VND for 0 pieces in the warehouse.

The correct scenario should be to return the goods at the current average cost:

On the other hand, using the average cost to value the return ensure a correct inventory value at all times.

b. Further thoughts on anglo saxon mode

For people in using the anglo saxon accounting principles, there is another concept to take into account: the stock input account of the product, which is intended to hold at any time the value of vendor bills to receive. So the stock input account will increase on reception of incoming shipments and will decrease when receiving the related vendor bills.

Back to our example, we see that when the return is valued at the average price, the amount booked in the stock input account is the original purchase price:

This is because the vendor refund will be made using the original purchase price, so to zero out the effect of the return in the stock input in last operation, we need to reuse the original price. The price difference account located on the product category is used to book the difference between the average cost and the original purchase price.

A company might have several bank accounts or cash registers. Within KIU it is possible to handle internal transfers of money with only a couple of clicks.

We will take the following example to illustrate. My company has two bank accounts and I want to transfer 10,000,000 VND from one of our bank accounts to the another one.

→ Check your Chart of Accounts and default transfer account

To handle internal transfers you need a transfer account in your charts of account. KIU will generate an account automatically based on the country of your chart of account. To parameter your chart of account and check the default transfer account go into your the accounting module, select Configuration ‣ Settings.

→ Log an internal transfer

The first step is to register the internal paiement. To do so, go into your accounting dashboard. click on the more button of one of your banks and select New ‣ Internal transfer.

Create a new payment. The payment type will automatically be set to internal transfer. Select the Bank you want to transfer to, specify the Amount and add a Memo if you wish.

Save and confirm the changes to register the payment.

In terms of accounting the money is now booked in the transfer account. We’ll need to import bank statements to book the money in the final accounts.

→ Import bank statements and reconcile

Note that the bank balance computed by KIU is different that the last statement of your bank.

That is because we did not import the bank statement confirming the departure and arrival of the money. It’s thus necessary to import your bank statement and reconcile the payment with the correct bank statement line. Once you receive your bank statements click the new statement button of the corresponding bank to import them.

Fill in your Transactions line. Once done, KIU will display a Computed Balance. that computed balance is the theoretical end balance of your bank account. If it’s corresponding to the bank statement, it means that no errors were made. Fill in the Ending balance and click on the Reconcile button.

The following window will open:

You need to choose counterparts for the paiement. Select the correct bank statement line corresponding to the paiement and click on the reconcile button. Close the statement to finish the transaction

The same steps will need to be repeated once you receive your second bank statement. Note that if you specify the correct amount, and the same memo in both bank statement and payment transaction then the reconciliation will happen automatically.

 

On the accounting dashboard, click on the More button of your bank journal, then click on Bank Statements.

Choose the bank statement .To close the bank statement, just click on Validate.

Register your payment by importing your bank statements that will be impacted by the payment of the bank fee.

You can choose to directly reconcile the statement by clicking on the button

 

Or you can also start the reconciliation process from the dashboard by clicking on Reconcile # Items.

When doing the reconciliation, you can select an open balance and click the Bank fees button to get all the relevant data instantly.

Finally, click on Reconcile to finish the process.

If the balance is correct, you can directly close the statement from the reconciliation by clicking on

 

Otherwise, click on GO TO BANK STATEMENTS  to open the statement and correct the issue.

In Kiu BMP you have the possibility to pre-fill some accounting entries in order to easily reconcile recurrent entries such as bank fees.

First, you need to configure a model reconciliation entry for bank fee. To do so, go to the accounting module dashboard. On your bank journal, click on More ‣ Reconciliation Models.

Click on the Create to create a new Button Label. You can create a button Label called Bank fees.

Choose the Account the debit amount will be posted in.

Moreover you also need to specify that the amount type is “Percentage of balance” with an Amount of 100%. This will tell Kiu BMP to take the entire fee into account.

You can apply the Tax on the bank fees in choosing Tax type.

If you you want to Add a second line of accounting entry, check-in the check box.

In Amount type, there are two options you can choose from.

Choose Fixed If the amount of your bank fee is fixed, and specify the amount in the amount tab.

Choose Percentage of balance, and input the amount in the amount tap. This specify the bank fee amount will depend on amount of the transaction.

You can refer a configuration for Bank fees button:

With Kiu BMP, you can import your bank statements manually or import by using our template > Download Import bank statement Template here.

In the Dashboard, click on the button New Statement related to the bank journal.

Just fill in the fields according the information written on your bank statement. The reference can be filled in manually or you can leave it empty. We recommend to fill in Partner to ease the reconciliation process.

The difference between the starting balance and the ending balance should be equal to the computed balance.

When you are done, click on Save.

→ How to input opening balance for accounts except Inventory Valuation Account

This instruction wouldn’t apply to initial inventory, we will instruct on how to make your initial inventory in next chapter.

Step 1: Create Initial balance Journal (If the journal hasn’t been created)

In the Accounting module, go to Configuration (Accounting) ‣ Journals.

Click on Create button to create a new journal with the following information: 

• Journal Name: Initial Balance (optional)
• Type: Miscellaneous

Short Code: SDDK (optional)

Click Save when finished.

Step 2: Input the Initial balance 

In the Accounting module, go to Adviser ‣ Journal Entries.

Click on Create button on the top-left screen to create a new journal entry:

• Journal: select the Initial Balance journal.
• Date: choose the first date of your fiscal year.
• Reference: if any
• In Journal Items section, select the desire account and input the initial balance in Debit or Credit column. Select Partner (if any), and annotate Label for the entry.
• Click on Add an item and select SDDK Opening Balance as the counterpart account, and input the Debit and Credit. The total Debit and Credit need to be balanced.

When finished, click on Save then Post the entry.

 (Example)

→ How to input opening balance for Inventory Valuation Account (Initial inventory)

a. Create accounts to record initial inventory balance.

Go to Inventory module, choose configuration ‣ Locations ‣ Virtual locations/ Inventory adjustment ‣ Fill Opening Balance account in Accounting information field ‣ Save.

b. Update cost of goods sold

You can update cost of goods sold of a product manually in product form or you can use import function for mass data.

Go to Inventory module ‣ Inventory control ‣ Products

Or choose import button to update Cost for a great amount of products.

c. Record opening balance for inventory

There are 02 methods of creating initial quantity for inventory:

Method 1: Update inventory quantity on hand manually.

Go to Inventory module ‣ Inventory control ‣ Inventory adjustments ‣ Create ‣ Choose and fill information for reference fields including Inventoried location, Force accounting date, etc. ‣ Start inventory.

Update actual quantity of products in real quantity field ‣ Validate inventory ‣Save.

Method 2: Update real quantity via importation.

Go to Inventory module ‣ Inventory control ‣ Inventory adjustments ‣ Import ‣ Valida

→ How to create a manual journal entry

To create an journal entry manually, go to Accounting module ‣ Adviser ‣ Journal entries ‣ Create

→ How to import journal entries

See How to import file into Kiu BMP here.

Download Journal Entries – Import Template here.