Introduction

Issues caused by selling below on hand quantity 

When processing a sales invoice, you will be unable to complete the sale if there is not enough or no stock on hand for any of the items sold at invoice date. This avoids discrepancies in calculating: 

• the Average Cost of the item 
• the Cost of Sales General Ledger postings 
• the Sales Analysis Gross Margin reports  
• Stock Valuations 

A common problem for any inventory-based business is ensuring to record receipts before sales. Once stocks go negative, the cost of the items sold is not present to properly determine cost of sales. 

Prevent selling below on hand quantity

By default, you cannot sell bellow on hand quantity. If you need to reset: 

1. Go to Setup > Company Details & Settings.  

2. In the Settings tab, under Other Settings, tick Prevent from selling items with no stock on hand. 

3. During transactions, a warning message will display all items on the invoice that will result in negative on hand quantity along with the date this will happen. This could be a past date if you are posting a back dated invoice.  

Before you can process the Invoice: 

• Process any pending stock receipts. 
• Post a stock adjustment if the balance is incorrect. 

In the case of a sales order: 

• You will receive a warning that there is currently no stock on hand to fulfil the order but can process the order as there are no actual stock movements. This allows outstanding receipts to post before you complete and invoice the order. 

Manual adjustments for selling with no stock on hand

Unticking Prevent from selling items with no stock on hand allows you to process sales even if the stock on hand is negative. However, this turns off the calculation of: 

• Average Cost 
• the GL Cost of Sale 
• Stock Values postings: This means you must manually post an end-of-month adjustment for closing stock on hand.  

Determining on hand stock quantity and value

To determine Closing Stock value, use the Stock Listing Report. This determines the: 

• Stock Quantity you have on hand at month end. The quantity shown on month end may not be all the physical stock you have on hand. It represents the tracked items (with the 'Track Stock Levels' flag set) in the system at that point.  
• Stock Valuation for what you have on hand at month end. This is calculated from each Item's Last Cost or Average Cost. The system updates these when Purchases post but you can maintain them at your chosen value. 

Perform a system stock take, using the Stocktake function, to reset the on hand quantities and average cost of all items, based on recorded values. 

Average stock cost and valuation

The system uses the Average Cost accounting method to value stock. The Average Cost of each Item is the value of the purchased items added to the value of the Items in stock and dividing by the total quantity on hand (after the purchase). 

This method facilitates the posting Cost of Sales and Stock Values movements for every sale at the time purchase. Therefore, the costs shown in the Profit and Loss Journals represent the sales made at that time, not just at month end. Valuing stock this way allows for the: 

• Addition of extra costs, such as landing, transport, to the product cost to get a true cost for each item. 
• Production of Margin Analysis for all sales, in both Sales Analysis and Profit and Loss Reports, at any time, not just at month end after a stock take has been carried out and posted. 
• Accuracy of the Stock Control figure in the Balance Sheet, reflecting all movements posted at that time. 
• Smoothing out of price fluctuations and therefore the value of stock used to calculate the cost of sales. This increases profit and is ideal in retail or services environments.