Month End Inventory Journal

Step 1: Note the Accrual Balances

ℹ️ The goal is to clear the accrual balances. By the end of this exercise, their balances should be zero.

1. Navigate to the Financial Statements Dashboard (Main Menu > Accounting > Financial Statements > Menu (button) > Dashboard).

2. Select Month next to Set and click View (button).

3. Adjust the dates using the arrow keys if you want to see the previous month's balances.

4. On the Accruals (tab), note down all the accrual accounts that have amounts in them.

5.  For example:

   • Accrued Liabilities - Accrual - Inventory = R1 215 597.42

   • Accrued Liabilities - Accrual - Purchases = R118 660.95

Step 2: Note the Value of Inventory as per the Inventory Report

ℹ️ The goal here is to ensure that inventory is correctly recorded in your ledger.

1. Navigate to the Inventory Report (Main Menu > Reports > Inventory).

2. Select This month or Last month next to Date (whichever is applicable).

3. Click View (button).

4. The report has three sections:

   1. Opening Balances

   2. Movement

   3. Closing Balances

5. Make a note of the Value in the Closing Balance section. This is the value of your inventory on hand and should be recorded as such in your Statement of Financial Position. (For example, R256 123.58). 

6. Optional: If you would like to split your inventory, you can filter the report by Category (e.g. Finished Goods, Raw Materials) and record the individual amounts. As long as all the amounts add up to the Closing Balance. For example:

   1. Finished Goods = R42 128.36

   2. Raw Materials = R210 285.44

   3. Work in Progress = R3 709.78

Step 3: Note the Value of Inventory as per the Ledger

1. Navigate to the Financial Statements > Statement of Financial Position (Main Menu > Accounting > Financial Statements > Menu (button) > Statement of Financial Position).

2. Select Month next to Set and click View (button).

3. If the decimals are hidden, click Menu (button) and uncheck Hide Decimal Values.

4. Make a note of all your inventory accounts under the Inventory heading.

5. For example:

   1. Finished Goods = R32 580.23

   2. Raw Materials = R84 367.28

   3. Work in Progress = R88 236.58

   4. Total = R205 184.09

Step 4: Calculate the Inventory Movements

ℹ️ The goal is to calculate what entries are needed to make the balances in the ledger (Step 3) match those of the inventory report (Step 2).

1. Subtract the amounts calculated in Step 2 from the corresponding amounts in the ledger as recorded in Step 3.

2. For example:

   1. Finished Goods: R42 128.36 - R32 580.23 = R9 548,13  

      • Finished goods have increased, so this account will be debited.

      • Debit adds the amount to the existing amount.

   2. Raw Materials: R210 285.44 - R84 367.28 = R125 918.16 

      • Raw materials have increased, so this account will be debited.

   3. Work in Progress: R3 709.78 - R88 236.58 = R-84 526.8 

      • Work in progress has decreased, so this account will be credited.

      • Credit deducts the amount from the existing amount.

   4. Total: R256 123.58 - R205 184.09 = R 50 939,49 

      • The overall stock has increased, so this account will be debited.

      • Note:  You will either record the values in Steps 1 -3 or the value in Step 4. 

Step 5: Create a Journal Entry

1. Navigate to the Ledger (Main Menu > Accounting > Ledger).

2. Click New (button) and select General Journal (GJ) from the list.

3. Date = Enter the last day of the applicable month.

4. Period = Enter the last day of the applicable month.

5. Amount = Will be filled in automatically after steps 7 - 9.

6. VAT = No VAT.

7. Fill in the first item as follows:

   1. Description = Month End Stock Adjustment.

   2. Credit = Type the name of your first accrual account (e.g. Accrued Liabilities - Accrual - Inventory).

   3. Total (exc) = Type the value of your first accrual account (e.g. A = 1 215 597.42).

8. Click Add Item (button) and repeat Step 7 until all your accrual accounts are entered.

9. Click Add Item (button) and record your inventory movements, one line each, as follows:

   1. Description = Month End Stock Adjustment.

   2. Debit / Credit = Type the name of your first inventory account (e.g. Inventory Finished Goods). Type the name in the Debit column if the amount must be debited. Type the name in the Credit column if the account must be credited.

   3. Total (exc) = Type the value of your inventory as calculated in Step 4 (e.g. R9 548.13).

10. Click Save (button).

11. At the top of the list of items, there is a Dr amount and a Cr amount. Calculate the difference between the amounts (e.g. Cr total - Dr total).

12. Click Add Item (button) and record the Cost of Sales entry as follows:

    1. Description = Month End Stock Adjustment.

    2. Debit  = Select your Purchases or Cost of Sales Expense Account.

    3. Total (exc) = Type the value that you calculated in Step 11.

    4. Click Save (button).

    5. Click Done (button).

Example Journal Entry where the Stock is not split

• Credit Account: Accrued Liabilities - Accrual - Inventory = R1 215 597.42

• Credit Account: Accrued Liabilities - Accrual - Purchases = R118 660.95

• Debit Account: Inventory on Hand = R50 939.49

• Debit Account: Cost of Sales Expense = R1 283 318.88

Example Journal Entry where the Stock is split 

• Credit Account: Accrued Liabilities - Accrual - Inventory = R1 215 597.42

• Credit Account: Accrued Liabilities - Accrual - Purchases = R118 660.95

• Debit Account: Inventory - Finished Goods = R9 548.13

• Debit Account: Inventory - Raw Materials = R125 918.16

• Credit Account: Inventory - Work in Progress = R84 526.80

• Debit Account: Cost of Sales Expense = R1 283 318.88

Step 6: Check the Entries

1. Repeat Step 1 to verify that your accrual accounts are zero.

2. Repeat Step 3 to verify that the amounts now match those in Step 2.