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Inventory Categories

All items must refer to a single inventory category. Inventory categories are defined from:

Setup->Inventory Setup->Inventory Categories Maintenance

Their purpose is to group like items together and define key information once that refers to all items of the category - to maximise the efficiency of the data storage and to minimise the inputs required. The inventory category has the following fields:

  • Category code - up to 6 characters
  • Description of the category - up to 20 characters
  • The stock type - whether the category relates to service items, finished goods items or raw material items
  • The general ledger code for the cost of stock of this category - each category can be maintained in a separate general ledger account if required - this of course is only useful if inventory is linked to the general ledger in the company preferences
  • The general ledger code where the cost of stock adjustments - both quantity and cost adjustments - are posted for all items of this category
  • The general ledger code where price variances are posted to. Price variances are the differences between purchase cost of items and the inventory cost of an item of the category
  • The general ledger code where material usage variances are posted to. These are the difference between what the bill of material expected the material cost of the item to be compared to the actual issued cost of materials. Material usage variances are realised and posted when manufacturing work orders are closed.
  • The general ledger code where work in progress for the items of this category are coded to. This account is used only in manufacturing when there is a work order for an item of this category

The category then determines how inventory transactions are posted to the general ledger - all items in the same category are posted the same way.

In addition to the fields above, any number of "properties" can be defined for an inventory category. These can be considered like user defined fields for items setup to be part of the category. e.g. In the demo data we have a category for air-conditioners - we are interested in maintaining certain additional information about air conditioners such as:

  • Output cooling
  • Output heating
  • Noise dB inside unit
  • etc .....

These fields are not relavent to other inventory categories. When category properties are defined - there are options to define the inputs of the fields - they can be simply a text box, a check box or a combo box with the values pre-defined as a comma separated list. When a user comes to define an item these new fields (properties) will display on the item entry page.

To enter new properties for a specific inventory category it is necessary to click on edit for the category - the new properties form will show below the usual information relevant to the category.

Changing a Category

The Category of a stock item can be altered at any time.

However, if the stock journals option is active (in the company preferences set up), it should be remembered that the general ledger coding set up for that category can not be amended retrospectively. In other words, general ledger journals created for invoices, credit notes and stock adjustments created using the old category general ledger codes cannot be altered. The general ledger coding could be amended with a manual journal if necessary.

Note: Sales analysis done by Inventory Category is performed with the stock categories as they were when the invoice/credit was created. Inventory Category information is stored in the sales analysis table and cannot be changed retrospectively.

Inventory Categories

Inventory Categories are the natural groupings which apply to certain types of stock. A business will normally have several distinct categories. E. g. A manufacturing jeweller might have stock categories for gold chain, silver chain, diamonds, rubies etc.

Inventory Category Code

This is a six character text field which is the reference used internally by the system. The category code must be unique between different categories. It cannot be changed retrospectively and cannot be deleted where stock items are set up to use the category, or sales analysis records exist using the category. The category code is stored against sales analysis records for reporting. All stock items must be defined as belonging to a category and has the appropriate category code stored against it in the StockMaster table.

Inventory Category Description

This description is used in searches for stock items and in sales analysis reports to describe the category of stock referred to. Up to 20 characters of text can be entered, although on some reports less than the full description will appear.

Balance Sheet Inventory GL Account

Stock is an asset to the business - that according to GAAP should be valued at the lower of its orignal cost or what it could be sold for net of selling costs (net realisable value). To integrate stock values fully into the accounts every time stock is received it must include the value of assets in the accounts. For each category of stock it is possible to specify different asset accounts in the general ledger where the postings are made to. The selection under this field is the general ledger asset account that should record the value of stock held of this category. Put in accounting terms this is the general ledger account where system-created standard costing journals will post the balance sheet entry. It is possible to set up a GL account for each stock category or to post all raw material stock categories to a raw material general ledger account and similarly for finished goods stock categories. The select box lists all the available balance sheet accounts - profit and loss accounts will not show (because it is not appropriate to record stock values in the profit and loss account). If a new general ledger account needs to be set up this should be done first. This field will not be used if the company preferences flag for "Create GL entries for stock transactions (at standard cost)" is not enabled.

Inventory Adjustments GL Posting Account

When stock is adjusted - ie stock quantities are increased this has the effect of increasing the value of stock holdings. In an integrated system the value of the increase in stock gets posted to the "Balance Sheet Inventory GL Account". The double entry here is to reflect the value of the stock find in the profit and loss account. There is a profit made for the value of the stock found and adjusted up. The reverse applies for stock adjusted down. The entry in this field is the general ledger account - a profit an d loss account where the profit on stock finds (and loss on stock losses) is posted to. In accounting terms, this is the general ledger account where the system created standard costing journals will post the profit and loss entry to for stock adjustments. It can be different for any or all stock categories. The select box lists all available profit and loss accounts. This field will not be used if the company preferences flag for "Create GL entries for stock transactions (at standard cost)" is not enabled.

Purchase Price Variance Account

When purchase invoices are entered at a determined exchange rate for an item, the local currency cost is compared against the standard cost and the difference is taken as a profit or a loss. The difference is known as a purchase price variance. Purchase price variances must be posted to a profit and loss account. The entry in this field is the general ledger account used by accounts payable invoice entry to post variances between standard cost and the standard cost of stock items of this category. Price variances are calculated when the purchase invoice is entered, unless the purchase order item is on a shipment. Shipment purchase price variances are calculated when the shipment is closed. This field will not be used if the company preferences flag for "Create GL entries for stock transactions (at standard cost)" is not enabled.

Material Usage Variance Account

This account is used when a work order is closed and the quantity of material of this category issued to the work order is different to the requirements from the bill of materials of the item(s) being made on this work order. The difference is evaluated at the standard cost of the component item.

This general ledger account is used by the works orders to post the variances between the actual material issued to a work order and the standard requirements of the work order based on the number of finished items resulting from the work order. This field will not be used if the company preferences flag for "Create GL entries for stock transactions (at standard cost)" is not enabled.

Type of Resource

The type can be finished goods, raw materials, dummy or labour. Finished goods and labour are purely for reporting. Labour type items will alter the display of the data input form to allow selection of labour recovery accounts - these are profit and loss accounts as opposed to normal stock accounts that are balance sheet accounts.

This field declares the type of resource that the stock category represents and is one of Finished Goods, Raw Materials, Labour or Dummy Inventory. This field is used to distinguish labour type stock items from other components for the purposes of calculating work centre overhead in the cost roll up. It is also used for ordering stock reports to ensure raw materials and finished goods are grouped together.