Accolent ERP accommodates both Inventory and Non-Inventory products. Inventory products are goods held for sale. Non-Inventory products include items for internal consumption (e.g., Office Supplies) or items that may be billed to customers (e.g., Labor) but for which, costs are not tracked to orders. For an Inventory product, the quantity on hand and available to sell is tracked and the Average Cost of the product is maintained. For a Non-Inventory product, there is no tracking of any quantity and no Average Cost is maintained for the product.
Inventory Products
- Inventory products are products that are purchased then maintained in stock and held for sale.
- Each such product has a unique Product Code and the Quantity on Hand (QOH) of the product is tracked through a Ledger Card.
- The Inventory Status screen ties out the QOH to the Quantity Available (Q-Avail) to sell.
- Average Cost is tracked for an Inventory product to capture the costs of all purchases of the product and to record all sales or other adjustments made to the product.
Non-Inventory Products
- Non-Inventory products are products that are not typically sold but are for internal use or that are used to facilitate sales but for which costs are not tracked to sales.
- Examples of Non-Inventory products could include consumables or parts used for internal maintenance or operations but that are not sold.
- A Non-Inventory product will also have a unique Product Code but no QOH or Q-Avail of the product is tracked.
- There is no Average Cost since there is no tracking of QOH.
- The cost of a Non-Inventory product is recorded when the Vendor’s Invoice for the product is vouchered, and the voucher may then be allocated to various GL Accounts typically as a period expense.
Accounting Treatment of Inventory Products
- In accordance with US GAAP, the costs of Inventory products when purchased are capitalized on the Balance Sheet as Inventory.
- The GL posting of the purchase of Inventory products happens upon PO Receipt and debits Inventory and credits Unconfirmed Accounts Payable; when the Vendor’s Invoice is recorded, this debits Unconfirmed Accounts Payable and credits Accounts Payable.
- The costs of Inventory products capitalized into Inventory are amortized to Cost of Goods Sold (COGS) when the products are sold.
- US GAAP allows for the amortization of capitalized costs to COGS using Average Cost, FIFO or LIFO (NOTE, LIFO may be being discontinued); Accolent ERP uses the Average Cost method.
- Under US GAAP, direct costs of Inventory products may also be capitalized into Inventory and amortized to COGS as the associated products are sold.
- Accolent ERP provides Landed Cost functionality to (1) track direct costs of Inventory products (2) capture and capitalize these at the time of PO Receipt and (3) allocate the direct costs to the products received on the PO.
Accounting Treatment of Non-Inventory Products
- For Non-Inventory products costs are not capitalized on the Balance Sheet but are instead typically expensed as period costs when the Vendor’s Invoice is recorded.
- The GL posting of the purchase of Non-Inventory products happens when the Vendor’s Invoice is recorded, this debits an Expense account and credits Accounts Payable.
Accounting Treatment of Special Orders
- Special orders link sales orders to POs and a special order sales order can be filled only from its linked PO.
- In Accolent ERP all special order (i.e., Class SP) products as well as products designated as one-time special orders must be marked as inventory products, even if the products are not typically kept in stock.
- This is required because special order products, even if drop shipped, are first received into Inventory and then taken out of Inventory when invoiced.
- Using the Inventory account for special order products allows for returns of special order products to be managed as well as facilitating the tie-out and audit of special order transactions.
- Unlike non-special order transactions, special orders take the cost of the sales order directly from the linked PO.