Solution:

If Inventory Control (IC) is linked to General Ledger (GL) in Sage Pro ERP, three GL accounts need to be specified for every inventory item: Item Control, PO clearing, and IC Clearing. This document explains the purposes of these accounts and the conditions under which the system posts to them.

Note: The accounts recommended below should not be considered definitive. Different accounting practices and rules apply to different types of businesses. Consult an accountant for information on which accounts to use.

Item Control Account

The Item Control (IC Control) account is the inventory asset account and it maintains the inventory value.

Purpose

When inventory is received through any means, this account is debited. When inventory is issued through any means, this account is credited.

Non-Stock Items

The Item Control account specified for non-stock items, such as services, should usually be the same account as the item’s Cost of Goods Sold account.

Note: Please refer to the Transaction Category section of the Accounts Receivable (AR) manual for more information on the Cost of Goods Sold account.

This will allow the accounts to be debited and credited for the same amount and net to zero when a non-stock item is invoiced. Therefore, the sale of a non-stock item will only affect the AR and sales accounts. Since non-stock items are usually services, the cost of the service is usually handled by the Payroll module as a payroll expense.

PO Clearing Account

Purpose

The PO Clearing account acts as a temporary holding account from the time a purchase order is received until the an invoice for that purchase order is entered. It allows the Item Control account, and the inventory value and quantities to be increased as a purchase order is received.

When a purchase order is received, the PO Clearing account is credited, and the Item Control account is debited. When an invoice is entered in the Accounts Payable (AP) module using the Invoice PO Receipts option, the PO Clearing account is debited (clearing the account), and the Accounts Payable account is credited.

Non-stock Items

A PO Clearing account must be defined for non-stock items; however, the account specified does not matter. Non-stock items are not tangible items and purchase orders are not entered for them. As a result, this account will not be posted to.

IC Clearing Account

Purpose

The IC Clearing account is designed to act as a temporary holding account until a decision is reached as to which account the funds need to be moved to. Sage Pro automatically posts to the IC Clearing account whenever inventory is affected directly through the IC module. For example, whenever inventory is issued or and inventory count is entered. The offsetting entry is always to the Item Control account.

Example One:

A company does an inventory count and discovers that there are only eight widgets in stock; however, IC lists ten widgets on hand. Under the Transaction menu, point to Manage Inventory and click Enter Inventory counts. Change the on hand quantity from ten to eight. In an average weighted company where each widget has an average cost of $10, the system makes the following GL postings:

Account	Debit	Credit
Item Control (asset)	$20	$20

The $20 in the IC Clearing account now must be moved to an appropriate account. That account depends on what happened to the two missing widgets:

• If the widgets were stolen, the $20 might be moved through a journal entry in GL module to a “Loss,” or “Shrinkage” type account.
• If the widgets were damaged, the $20 might be moved to a “Damaged Inventory” account.

Non-stock Items

An IC Clearing account is required for non-stock items. However, the system will never post to that account since transactions for non-stock items are not allowed to be entered directly through the IC module.

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