Overview: Function of Inventory
One of the key benefits of using ConnectWise IV is to ensure that your Profit & Loss (Income Statement) maintains a level of uniformity in the allocation of costs against revenue when a product is purchased and sold. Without the use of the inventory module (together with the Wise-Sync Inventory feature), goods procured would directly hit a Cost of Goods Sold (COGS) account at the time of purchase. Where with the IV module, COGS are only booked at the time of where the asset is sold.
The use of inventory is not limited to "Warehousing" and can be applied to situations where large up-front costs are incurred for the purpose of sale under either a project or where there is a potential delay in the invoice to the client. The last thing that a business owner wants is an "Odd Income Statement" where large expenses are booked to COGS in the prior month causing an on-paper loss, with income being booked in a proceeding month creating an abnormal profit.
When ConnectWise Inventory is active, and "Inventory" Class products are bought and sold via a Warehouse, Wise-Sync will handle the corresponding accounting transaction that provides for the adjustment of your balance sheet account (Inventory) at each warehouse location, allowing for correct allocation of transactions to your COGS account when goods are sold.
The accounting flow is detailed as follows:
The first step is when the Asset is purchased through ConnectWise Procurement, following the creation of a Purchasing Demand from a Ticket, Sales Order, Project or directly on an Invoice or Purchase order.
| Purchase Transaction (Purchase Order - PO1234) | Date | Account Type | Debit | Credit |
| Goods Procured into Warehouse | 14/02/2014 | Inventory | $10,000 | |
| Tax Liability | 14/02/2014 | Tax (@10%) | $1,000 | |
| Accounts Payable | 14/02/2014 | Accounts Payable | $11,000 |
At this time (assuming this was the only transaction into your Inventory Asset account), the Inventory Balance in Xero will be: $10,000
The next step is when the Asset is sold to the customer (via a CW Miscellaneous / Product Invoice)
| Invoice Transaction (Client Invoice - INV1324) | Date | Account Type | Debit | Credit |
| Goods Sold to Client (Sale Margin of 30% GP) | 15/03/2014 | Revenue | $13,000 | |
| Tax Collected | 15/03/2014 | Tax (@10%) | $1,430 | |
| Accounts Receivable | 15/03/2014 | Accounts Receivable | $14,300 |
The next step, processed at the same time by Wise-Sync is a Manual Journal, affecting the Asset Account and Posting the corresponding COGSbased on the defined Inventory Costing Model.
| Inventory Transaction | Date | Account Type | Debit | Credit |
| Goods Sold from Inventory | 15/03/2014 | Inventory | $10,000 | |
| Cost of Goods Sold (Client Invoice - INV1234) | 15/03/2014 | COS | $10,000 |
Income Statement
Company A - Not Using Inventory
| Company B - Using Inventory
|
Company A - Not Using Inventory
| Company B - Using Inventory
|