Making I.T. Happen
Accounting and Information Technology, Assistance and Support
Sage 50 - Management Accounts - More advanced

    Stock Valuation
    Work in progress
    Thinking for yourself!

Do not act on this information alone. always check with a qualified professional before making any change to accounting practice. 

Stock Valuation

The value of stock goes up and down not just with market trends but also for other reasons, stock may be obsolete or very slow moving and so not worth what was originally paid, or it may be very rare and in high demand and worth a lot more.

Similarly there are stock movements, losses through pilferage and unrecorded usage.

In addition there are stock movements every month, purchases and sales.  When setting up there is a useful wizard for opening stock which is accessed from the wizards option on the modules menu.

Periodically you will have stock check and find inconsistencies.  These needs to be represented in the accounts.  Accounting rules dictate that a conservative valuation be made, this is normally the cost price but where you have slow lines and obsolete stock these may be written down well below cost.

The stock module has several reports that will provide you with the stock valuation, however, you need to check that items are correctly valued especially obsolete and slow moving stock.

Once you have a figure, all you need to do is to reverse out the previous periods entry in closing stock (5201) and make the new entry for the current value, the other side of the jornals in both cases is the balance sheet stock account (1001)

Work in progress

This is probably the hardest and most overlooked entry.  Work in progress is the value already put into a project, job or sales order, that has not yet been fulfilled and therefore does not yet appear in the accounts.  Left un treated this would show the business making less profit because this expense would be offset against current sales instead of the future sale.   Making a provision for work in progress just delays this cost until the corresponding sale is entered and a true picture can be had.

If you have a lot of jobs going on at once this can be virtually impossible to determine without the use of a Job Costing system to keep track of it.

You can not, bring sales forward, you can only delay costs.  Having established the value of the costs involved in work in progress you can make a journal entry.  The two sides of which are the Balance sheet WIP account (1002) and the P&L accounts for the types of work normally these would be direct materials and labour costs in the range between 5000 and 6999.

Because WIP can have a big impact on Profit and Loss, financial professionals such as bank managers will always check in the Balance sheet that WIP is not permanently growing.

To start you need to reverse out the previous months provision as some if not all of that work is completed and any uncompleted work will be in the current valuation.  After reversal the WIP account should have no balance.  If it has a balance then you have made a mistake and need to sort it out before making the new provisions.

Thinking for yourself!

This may sound silly but you do need to think for yourself, your business may not be like any other, your management team may need more information in some areas than others.

If you have an exceptional item that throws the accounts think about why and how you should handle it, ask your accountant for support and make sure that you understand what they suggest, make them explain it to you in words of one syllable if need be. Every business has special exceptions, get to know your company, discuss how you handle things with your accountant and with the management team to be sure everyone understands what is being done.

Accounting is seen by some as a necessary evil, it is up to you to show them that it is a valuable and vital business tool that can help them be more effective in managing the company, producing results and reaching or exceeding their goals.

Remember 95% of the work has to be done to meet statutory requirements, so the cost of producing good quality information is relatively small and could change your role from statutory compliance to key player in the development of the company.

Financial reporting may not be enough on it's own, management may want to know the turnover per person or the profit per sq ft of factory.  These key indicators can be very useful and you should not limit yourself to purely financial information, subjective information such as customer satisfaction may be an important criteria in reviewing managements accounts, don't be afraid to incorporate additional information.

If you do have additional information to prepare, spreadsheets such as Excel are a great way to calculate and present the information.  Using the ODBC links from Sage you can have Excel automatically update cells from your live Sage data, this can save a lot of time, trouble and errors, manually entering information.

You will find out more about using ODBC in our Handy Guides