There are two parts to the Accounting for Cost of Goods Sold:
recording and accounting for the Receipt of Stock
allocating value to record the Cost of Sales
Receipt of Stock
In BMS, to cater for the many different ways companies receive and account for stock, we have separated the receipt of stock into the system (Receipts) from the recording of the supplier's invoice for those goods (Purchase Invoices).
To account for this separation in time, and the possible separation of value between the two, we make use of a Purchase Accruals account.
This way you are forced to account for differences between what has been Receipted as Stock (Debit Stock Account -> Credit Purchase Accruals) and what has been Invoiced by the Supplier (Debit Purchase Accruals -> Credit Creditors).
The Invoicing side is done as we 'Process' Purchase Invoices to Xero.
The Stock Receipt side is generated as a Manual Journal in a background job, created daily.
Recording Cost of Sales
When the system raises Invoices in BMS, these are pushed to Xero (Credit Sales Revenue Accounts -> Debit Debtors & GST), rather than recording the Cost of Sales at the time of invoice, we have chosen to record them on Dispatch of Stock.
As part of the Manual Journal generated daily, dispatches of stock generate journal entries (Credit Stock Account -> Debit Cost of Sales Account).
Manual Journals
As described above, Cost of Goods Sold (COGS) Journals are raised on a daily basis to account for Stock Receipts, Dispatches and Adjustments recorded for the previous day.
You can view these Journals from:
Admin module -> Accounts section -> View Journals
Reconciliation of Cost of Goods
On a monthly or quarterly basis, the accountant would then do a Stock Valuation for the period. You can access Stock Valuations from the Stock module.
Outputs from the Valuation include:
reconciliation of Stock Movements for the period
reconciliation of Purchase Accruals to account for variances between Receipted Stock and Invoiced Stock.
To account for variations you would do one of two things ..
if the Invoiced Value was incorrect - void & re-invoice at correct value.
if the Receipt Value was incorrect - raise a Value Adjustment against the Purchase Accruals account.