Accounting for Stock and Purchasing within the Micronet Distribution System is based upon the cost or management style ledger where individual standard costs are applied and purchase price variances are calculated and taken up (as seen in the example in the last topic). In the valuation of stock, Micronet generally uses average cost as the standard cost. Where FIFO (First in First Out) or LIFO (Last in Last Out) stock valuation is being applied, Micronet generally assumes actual cost.
These two methods of stock valuation are generally used only where serial numbers or unique identification of products occurs, and thus costs can be tracked more individually. In most cases, average cost is applied where stock items are received in lump sum volumes and items are generic in nature. This creates greater efficiency and speeds up the data entry process, especially where high volume stock receiving is evident within a business operation.
Traditionally, stock and Cost of Sales are accounted for in a very manual way in the ordinary General Ledger. For example:
| Balance Sheet | ||
| Current Assets | ||
| Stock on Hand | $152,635.00 | |
| Profit & Loss Statement | ||
| Cost of Sales | ||
| Opening Stock | $132,987.00 | |
| Add: Purchases | $558,698.00 | $691,685.00 |
| Less: | Closing Stock | $152,635.00 |
| Total Cost of Sales | $539,050.00 |
In the above example, we are effectively trying to estimate the value of the cost of the products we have sold within a specified period. We are calculating our estimation in bulk or total amounts and the cost reflected is based on actual amounts paid. This system is very effective for manual stock systems and controls. However, Micronet is capable of calculating the cost of each product sold at the time of sale: perpetual stock method. Therefore, the traditional method of accounting for stock and Cost of Sales as shown above is unnecessary.
Micronet reports perpetual stock and Cost of Sales in the following way, where average cost is applied as the standard cost to products and items within the Distribution system:
| Balance Sheet | $ | $ |
| Inventory | ||
| Stock on Hand | 152,635.00 | |
| Goods Received | -563,258.00 | |
| Goods Received Adjustments | 3,987.00 | |
| Purchases | 558,698.00 | -573.00 |
| Total Inventory | 152,062.00 |
| Profit & Loss Statement | $ | $ |
| Cost of Sales | ||
| Cost of Sales (MDS) | $532,987.00 | |
| Cost of Sales Adjustments | ||
| Stock Adjustments | 5,563.00 | |
| Stocktake Adjustments | 2,698.00 | |
| File Cost Changes | -856.00 | |
| Revalue Stock Sold | -4,250.00 | |
| Uncosted Reconciliation | 852.00 | |
| Supplier Rebate COS Adjustment | 5,456.00 | |
| Total Cost of Sales Adjustments | 9,463.00 | |
| Net Cost of Sales | 542,450.00 |
While Micronet stock and Cost of Sales accounting appears to be far more sophisticated than traditional methods of inventory and cost valuations, the classifications shown above all have a specific purpose. Each captures a diverse and unique type of transaction occurring in the application and process of average cost as the standard for inventory valuation.