Basic Deferred Cost of Sale Example
Contents
Overview
In this page we are going to look at a basic deferred cost of sale example. The point of this example is to allow the user to understand what values may require fixing if a deferred cost of sales is posted with value change. In this example we have used a simple but extreme example to emphasis impact on your accounts, this example is actually not too uncommon on a brand new system.
For a visual guide of the processes involved when using Deferred Cost of Sales, see How To: Understand the Deferred Cost of Sales Process.
Prerequisite Stock
For this examples we will cite the following item throughout. If a user intends to recreate this on their test system then they need to Create and Adjust in the following stock item:
- Stock Code: T1
- Stock Desc: Test Item 1
- Stock Type: [Automotive] Car Care
- Sell Price(G): £6.00
- Stock Value: £0.00 (should be £1.00 per item)
- Save
- Adjust 10 in Stock
Initial Accounts
Incorrect due to stock value error, the system will simply not post any journals and this table is for example purpose only.
| Code | Description | Debit | Credit |
|---|---|---|---|
| 0120 | Stock | 0.00 | 0.00 |
| 0123 | Stock - Adjusted | 0.00 | 0.00 |
Accounts should display
If the correct stock value had been used then the system would have adjusted the correct value from Stock - Adjusted into the Stock nominal.
| Code | Description | Debit | Credit |
|---|---|---|---|
| 0120 | Stock | 10.00 | 0.00 |
| 0123 | Stock - Adjusted | 0.00 | 10.00 |
| 10.00 | 10.00 |
Create and Process a Sales Order
If recreating or testing this example then create and process the following order.
- Create a Sales Order for a Customer e.g [RR] Rita Richards
- Process one sales orders for the Customer e.g. [RR] Rita Richards
- Pay for the order with Cash 1 - Cash Sales Order
- Sell 7 - [T1] Test Item 1
- Process and Issue the Sales Order
Initial DCOS Report
- Go to [Accounts] [Other Actions Menu]
- Click on [Deferred COS Posting]
- Note the zero values in the Order Unit and Sk Unit cells for [T1] Test Item 1.
- Click Cancel to the report
Note - If incorrectly posted then in this example no Stock to Stock - COS journal would take place. Otherwise the system would post the wrong Cost of Sale journal which would need to be corrected manually.
Payment (as cash this would hit the accounts as soon as the sales order was saved)
| Code | Description | Debit | Credit |
|---|---|---|---|
| 0101 | Debtors | 0.00 | 42.00 |
| 0200 | Sterling Account | 42.00 | 0.00 |
| 42.00 | 42.00 |
Sales Order (this would hit the accounts as soon as the sales order was issued)
Please note that the deferred cost of sale journal has not taken place yet.
| Code | Description | Debit | Credit |
|---|---|---|---|
| 0101 | Debtors | 0.00 | 0.00 |
| 0107 | Tax on Sales | 0.00 | 7.00 |
| 0200 | Sterling Account | 42.00 | 0.00 |
| 0300 | UK Sales | 0.00 | 35.00 |
| 42.00 | 42.00 |
Part fix of Cost of Sale
If the user simply went into the stock item and corrected the stock value, from £0.00 to £1.00, and then posted the DCOS report the system would perform the following journal.
| Code | Description | Debit | Credit |
|---|---|---|---|
| 0120 | Stock | 0.00 | 7.00 |
| 0122 | Stock - COS | 7.00 | 0.00 |
Your accounts would end up looking like this
Note that we haven't fixed the stock values at all. Performing the DOCS without correcting your current stocks value will leave your account looking like the Trial Balance below. Note that the system believes that you have minus (credit) £7 stock value, even though we have £3 worth of stock left.
| Code | Description | Debit | Credit |
|---|---|---|---|
| 0101 | Debtors | 0.00 | 0.00 |
| 0107 | Tax on Sales | 0.00 | 7.00 |
| 0120 | Stock | 0.00 | 7.00 |
| 0122 | Stock - COS | 7.00 | 0.00 |
| 0200 | Sterling Account | 42.00 | 0.00 |
| 0300 | UK Sales | 0.00 | 35.00 |
| 49.00 | 49.00 |
Your accounts should look like this
Referring back to the [Accounts should display] journal at the top of the page. Your accounts should look like this; we are now going to look how to account for the remaining stock and deferred values.
| Code | Description | Debit | Credit |
|---|---|---|---|
| 0101 | Debtors | 0.00 | 0.00 |
| 0107 | Tax on Sales | 0.00 | 7.00 |
| 0120 | Stock | 3.00 | 0.00 |
| 0122 | Stock - COS | 7.00 | 0.00 |
| 0123 | Stock - Adjusted | 0.00 | 10.00 |
| 0200 | Sterling Account | 42.00 | 0.00 |
| 0300 | UK Sales | 0.00 | 35.00 |
| 52.00 | 52.00 |
We know that we have sold 7 of the 10 items we had in stock and there are 3 remaining. We are now going to look at account for their value.
Stock Value Correction
To correct the stock value follow this procedure. In a live situation this Stock Value Correction must be completed for every stock item with an incorrect stock value that will be corrected on the DCOS report.
- Open stock item [T1] Test Item 1
- Go to the [Stock | Adjustments | Adjustments] sub tab
- Click the Open Button and adjust all 3 items out.
- Click the Save Button to save the adjustment
- Go to the [Stock | Details | Properties] tab
- Enter Edit Mode
- Correct the stock value to £1.00
- Save
- Return to [Stock | Adjustments | Adjustments] sub tab
- Click the Open Button and adjust all 3 items back in
- Click the Save Button to save the adjustment
Stock Adjustment Nominal Posting
The following Journal will occur when adjusting the three items back into stock with am item value of £1.00.
| Code | Description | Debit | Credit |
|---|---|---|---|
| 0120 | Stock | 3.00 | 0.00 |
| 0123 | Stock - Adjusted | 0.00 | 3.00 |
| 3.00 | 3.00 |
Correct DCOS Report Posting
- Go to [Accounts] [Other Actions Menu]
- Click on [Deferred COS Posting],
- Note the new Sk Unit value of £1.00 [T1] Test Item 1
- Also note the Order Unit of £0.00 and the COS Diff of £-1.00
- Make a note the COS Diff Total, this will be the amount you will need to journal from Stock Adjusted to Stock to correct the stock value.
- Click Ok to post the Deferred Cost of Sale Report.
- A Minus figure means you need to Credit Stock Adjusted and Debit Stock with that value
- A Positive figure means you need to Debit Stock Adjusted and Credit Stock with that value
Accounting for DCOS Posting
Journal required for this training example to account for the sold stock value.
| Code | Description | Debit | Credit |
|---|---|---|---|
| 0120 | Stock | 7.00 | 0.00 |
| 0123 | Stock - Adjusted | 0.00 | 7.00 |
| 10.00 | 10.00 |
Accounts should display
For Stock transactions
| Code | Description | Debit | Credit |
|---|---|---|---|
| 0120 | Stock | 3.00 | 0.00 |
| 0122 | Stock - COS | 7.00 | 0.00 |
| 0123 | Stock - Adjusted | 0.00 | 10.00 |
| 10.00 | 10.00 |
Once this journal has been performed your nominal accounts would look like this.
Double Checking the Stock Value
- Go to [Stock | List] and select the [Print - Stock Value Report] and note the total stock value.
- Go to [Accounts | Details | Stock Value | Historical Valuation] click Go, note the total stock value.