Recognize COGS Without Sales

I am experiencing difficulty in moving costs to COGS. Here is the scenario:

We transitioned into ERP Next in the middle of the accounting year last year. I came on board in the middle of this process. Much of ERP Next was already set up and I continued to use what they had started. Sales Invoices were created and sent and when $ was received payments were booked. Any stock that we purchased went to the stock account. We have not started using the MFG Module because we had a lot of jobs already in process and are still fine tuning the system. Now, I am trying to move our direct materials into COGS. This is important because we are a furniture cabinet making company and we have to recognize rev and expenses as % complete.

I have had no trouble in recognizing the revenue. However, direct materials are a problem. I cannot determine how to bring in direct materials to COGS. I have even calculated what items in stock need to be moved into COGS but this is where the real snag is.

I have tried creating a BOM of these items to create a new item that I can then put to Finished Goods. However, to get the COGS, I need to SELL this item. But I do not want to sell this item as we have already received partial payment and the billing is done separately. I simply need to put the direct materials to COGS.

I also noticed that in creating a BOM and a Work Order, then a STOCK ENTRY: MANUFACTURE then a Delivery Note, things get messy. This creates a negative balance in the stock adjustment account which appears to double up the COGS (after the submission of the delivery note?) If I wanted to see DM, DL, and OH within COGS, each of them is going to be double counted. I realize that this nets with the adjustment, but why??? This seems like the Stock billed but not received account that can be bypassed by ‘updating stock’ in the purchase invoice. Is there a similar option for this issue that can bypass the stock adjustment account? I want to go straight from inventory (or WIP) into COGS.

I realize that within the MFG module we can create our items that we sell (cabinets, etc) that we are selling through BOMs. These can be tied into the Sales Invoices I believe and the COGS will handle itself at that point. However, that does me no good in the situation that we are currently in.

Has anyone that deals with Cost of Goods Manufactured (probably the more correct term in this instance) handled a situation like this in the past?

@Jason215 what I would suggest need to be done with extremely care !

Create an temporary account eg: “WIP COGS Temporary Year Close”

Get the accounts you need to adjust set they type as “Temporary”

Create a Journal Entry

  • If you debit WIP, credit Temporary Year Close
  • If you credit WIP, debit Temporary Year Close
  • If you debit COGS, credit Temporary Year Close
  • If you credit COGS, debit Temporary Year Close

Submit your Journal Entry

Set back the properly account types.

This will address your issue, but I can’t figurate what are the future account problems.

My major questions are:

  • Did you received money in advance for those transactions (that’s why you need to recognize they as COGS)?
  • In your country, doesn’t COGS require revenue taxes over COGS recognized?
  • On the year start, how do you will balance COGS and WIP again?
    • keep in mind that for all the stock entries against the work orders that compose that balance you will need to credit / debit the WIP COGS Temporary Year Close, without that, it will create a big discrepancy.

Also, I understand you are running into long-term projects, but I fell you are doing something wrong, if you need to do that kind of procedure.

I do have some customers in Archtecture, Furniture and Public Works, and most of they fall into the scenario you are describing, but none of they do the recognition of revenue without invoicing.

Thanks for your reply.

We do invoice and before I started at the company, they did not know how to utilize ERP too much at all. They sent invoices and when we received payments, I would enter the payment entry or create a sales invoice if they had not and then make the payment entry. These are ‘progress payments’ as the projects take several months or years to complete. So we have absolutely recorded revenue.

Accounting rules state that we have to match revenues to expenses in the same period. If we are 80% finished a project, we must recognize 80% of the revenue and 80% of the expenses we incurred. We have not used Work Orders or BOM’s at all up to this point. We are simply booking our purchases to the respective materials or expense accounts. Everything is just sitting in stock that is DIRECT MATERIALS. It should be fairly straightforward to be able to move something from the balance sheet to the income statement. I cannot do a normal Journal Entry because it has to be done through stock entry. But there is no way to do a stock entry that makes ONE entry like so:
Debit COGS $$$
Credit STOCK (or WIP) $$$

And as stated earlier, because we have already billed the customer and have payments against the sales invoices I cannot make a BOM or Work Order. This will simply create an item that needs to be sold for costs to move to COGS.

Not sure if there is a way to do this or not. I may try your suggestion above. As for the future, we will be implementing the Manufacturing Module soon. Here I will create the BOMs and the Work Orders etc and this should not be a problem once we are set. I just need to be able to move things that are hung up in the process.

I see!

@Jason215 You said you have create an item that will hold the total amount of STOCK / WIP right?

Create and Stock Entry for the Temporary item you mention

  • Temp Item, qty 2, rate 0, allow zero valuation rate

So, create an Stock Issue with the item you mention,

  • Temp Item, qty 1, amount X for WIP, difference account = WIP COGS Temporary Year Close
  • Temp Item, qty 1, amount X for STOCK, difference account = WIP COGS Temporary Year close

Create a Journal Entry to move the value from WIP COGS Temporary Year Close, to COGS

Also, dont forget to disable the item and the account later

Excellent. I was wondering what happened to the stock in your first example above. That was going to cause my balance sheet to be overstated. So I believe that this fixes that issue. I am going to attempt this tonight and tomorrow, but it looks like it should be fine. Thanks so much!

Once I get this all smoothed out, I will be able to utilize the system through the manufacturing process and avoid all of this.

@Jason215 it’s a pleasure to help!

Let me know if that works!
Also, when running into manufacturing if you have question, just bug me here on the forum!

I’m aways interested into furniture things around ERPNext