Inventory of items not for sale but distributed

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Hi! I am new to the inventory module and have set up items that we ordered and will be distributed to various service providers at no cost to the service provider.  The way I have set up the items is with no cost attached.  When I order/receive & pay for the goods from the supplier, I get a cost for the item.  When I create a receivable to relieve the inventory and distribute at no cost to a service provider there is no revenue attached to the item.

I see that the expense when I purchase the item hits the inventory ledger and when I distribute (sell) the item, the expense (cost of goods) posts to my expense ledger, however the expense transaction is tied to the service provider and not the supplier of the goods.  Not sure if I'm making sense....

Scenario:

I purchase and pay for a box of 100 bottles of hand sanitizer.

I provide 10 bottles of hand sanitizer to 10 different service providers at no cost to the provider, the expense is mine.

The purchase posts to the inventory GL. as $100.00 and the transaction is tied to the vendor I purchased from.

The "sale" posts to the expense GL as $10 x 10 transactions but the transactions are tied to the 10 different service providers that I created a sales invoice for to show who received the product.

Is this a correct way for accounting for the expense of the goods purchased and distributed?

Any suggestions?

Thanks to anyone who can assist. Slight smile

--Michelle

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  • 0
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    Michelle:

    From reading your post you are not selling these products, so why would you account for them in your inventory? It would be like purchasing a supply for your business and directly expensing the supplies. If you need to track the items you are distributing to your service providers then by all means you can use inventory. There is a direct cost of the sale to cost of goods or similar account. The problem occurs because you are not claiming any revenue. The way around is discounting the items with the cost of the items on a separate line when invoicing or use the discount feature in Sage. Please note the inventory module does not work well with an item with a zero cost.

    I hope I have answered your question. If not please post a response!

  • 0 in reply to Agate

    Thank you.  I will try implementing the discount feature and see if that gives me what I'm looking for.

    I was trying to use the inventory module to save tracking separately in excel spreadsheet, however this may be the best way for the purpose and duration (hopefully only for the upcoming school year!).

    I appreciate the quick response and detailed explanation/suggestion.

    Very helpful!

  • 0 in reply to MJohnston
    verified answer

    I don't see a problem with the setup myself, sorry Agate.

    Please note the inventory module does not work well with an item with a zero cost

    This is not a case of zero cost.  In Michelle's example, there is a $10 cost but no revenue.

    The way Sage 50 and most programs that handle inventory are set up, the cost is associated with the sale of the item, so the journal entry shows the name of the customer, not the name of the supplier when it is finally expensed.

    Using the inventory to track quantities is a good way to do it and it gives you the benefit of the reporting to help you manage quantities in stock for reordering.

  • 0 in reply to Richard S. Ridings

    Hi Rick:

    Thanks for correcting me. You are right! For some reason I was thinking about negative inventory. In Michelle's case the inventory module will work just fine because there is a cost.

  • 0 in reply to Richard S. Ridings

    Thank you Richard.  That was my hope with this setup. We have never had to track items that we distribute to our service providers (at no cost to them) before as it has always been a one time purchase/supply of product.  With the change COVID-19 protocols have brought forward, we now have ongoing PPE stock items that we need to supply for an unknown duration.  I was hoping that using the inventory module and reporting system, along with creating sales records with $0 sales would help track the number of inventory items provided to each service provider as well as the number of inventory items still in stock.

    I will be able to confirm the set up with our accounting auditors shortly as our year end is upon us!

    Thanks to all for the helpful information.

    Cheers!

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  • 0 in reply to Richard S. Ridings

    Thank you Richard.  That was my hope with this setup. We have never had to track items that we distribute to our service providers (at no cost to them) before as it has always been a one time purchase/supply of product.  With the change COVID-19 protocols have brought forward, we now have ongoing PPE stock items that we need to supply for an unknown duration.  I was hoping that using the inventory module and reporting system, along with creating sales records with $0 sales would help track the number of inventory items provided to each service provider as well as the number of inventory items still in stock.

    I will be able to confirm the set up with our accounting auditors shortly as our year end is upon us!

    Thanks to all for the helpful information.

    Cheers!

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