Part 1 of this Guide on how to manage inventory covers purchasing, producing, and selling inventory items in Manager. It also covers backorders and content of inventory reports when only basic functions are enabled. If you have not yet read Part 1, you should read it first.
This Part 2 covers more advanced features, including credit and debit notes, inventory kits, delivery notes, and goods receipts. It describes how the program’s behavior changes when these additional functions are used. Information in Part 1 is not repeated here.
Part 3 describes additional capabilities: inventory locations, transfers, and write-offs. You will need to understand information in Parts 1 and 2 before you can use the capabilities discussed in Part 3.
Credit Notes
In one sense, credit notes can be thought of as an aspect of managing Accounts receivable. They reduce how much a customer owes your business. But they can also impact inventory records when they record return of goods. Their effects are opposite those of a sales invoice, as described in Part 1 of this Guide.
Example
Brilliant Industries’ customer, Bob’s Hardware, returns one of the four white table lamps (Item code 101) it purchased in Part 1 due to a manufacturing defect. Brilliant creates a credit note:
The lamp is taken back at the same unit price as it was sold. If a tax code had been applicable upon sale, the same tax code would be applied to the return. Brilliant will deal with issues of repair, replacement, or write-off later. These have nothing to do directly with the credit note.
Note
When an inventory item is returned via credit note, its cost is transferred from the Inventory - cost expense account to the Inventory on hand asset account according to the cost(s) posted to Inventory - cost for the most recent sales of that quantity of the item (whether by sales invoice or receipt). Manager does not use the specific average cost applied when it was sold to the customer returning it.
Debit notes
Debit notes are parallels of credit notes, but for returning goods to suppliers instead of taking them back from customers. Their effects on inventory reverse those of purchase invoices.
Example
Brilliant Industries realizes it will probably not be able to sell as many silk lamp shades (Item code 388) as it purchased. So it returns four to ACME Distributing for account credit. ACME sends a credit note, which Brilliant enters in Manager as a debit note:
Again, had a tax code applied to the original purchase, the same tax code would be applied to the debit note. Overall inventory status after both the credit and debit note from the last two examples are entered is shown in the Inventory Items tab:
Note
Because there is no cost of goods calculation for purchases analogous to what occurs when inventory items are sold, there is no transfer of costs back into the Inventory on hand account with a debit note. The full purchase price of the item(s) returned is subtracted directly from Inventory on hand.
Inventory kits
The simplest enhancement of inventory management is use of inventory kits. These are not additional inventory items, but rather groups of already-defined items that are sold together. The items that make them up may also be sold separately. They are defined in the Settings tab.
Inventory kits are not pre-assembled, but are grouped together only as sold. They are not counted during physical inventory verification, because they do not exist until sold, so they have no value in Inventory on hand. When an inventory kit is sold, its constituent items are subtracted from inventory quantities on hand (quantities owned) as though they had been sold individually, at their existing average cost. Prices for inventory kits can be different from the sum of constituent prices.
Example
Brilliant Industries sells table lamps. It also sells a complete parts kit from which an end user can assemble a finished lamp. It sells the kit for more than it would sell the individual components, making additional profit from the confidence a consumer gains that all parts are compatible. Brilliant defines the following inventory kit:
Brilliant sells one of these kits to Lumen Lighting on the sales invoice below:
The quantities and values of all four constituent items go down by 1, as shown by the Inventory Items list. Note that the inventory kit itself does not appear in this tab:
Delivery notes
A major step up in complexity comes by using delivery notes. These document delivery of goods to a location or customer. Their use implies that physical delivery of goods does not always occur simultaneously with issuance of a sales invoice or cash receipt. Possible reasons include:
- Customer credit is not approved, so goods will not be delivered until payment is received.
- Items sold are backordered.
- Deliveries are spaced in time per contractual agreement.
- Products will be drop-shipped to an end user by a supplier.
- Sales invoices are issued immediately, with delivery notes serving as packing lists.
When the Delivery Notes tab is enabled, the Inventory Items list immediately changes. Two additional columns are added for quantity to be delivered and quantity owned. The original quantity on hand column now shows what should be found on premises, while quantity owned represents what is available to sell.
Example
Brilliant Industries enables the Delivery Notes tab. Its Inventory Items list changes, even though no new transactions have been entered. Notice that net quantities of everything previously sold by sales invoice (3 table lamps, 6 packs of 60 W bulbs, and 1 complete parts inventory kit) now show as still to be delivered, including those items sold as part of an inventory kit. Only items sold by cash receipt are considered to have been delivered. However, the backorder situation with LEDs still exists. Because that sale of 3 cases exceeded stock on hand of 2 cases, Brilliant Industries still owes 1 case to Lumen Lighting:
Brilliant Industries enters delivery notes by copying from previous sales invoices and credit notes. It also purchases 5 additional cases of LEDs from Edison Electrical for cash. The backorder is cleared and all quantities to be delivered are zero:
Note
Since credit notes are effectively reverse sales invoices, Manager assumes movement of goods is not automatic once the Delivery Notes tab is enabled. So delivery notes are required for credit notes, too, indicating that the credited goods have been delivered to your business. If a delivery note is created by copying a credit note, quantities will automatically be negative. If you create a delivery note manually, enter negative quantities.
Caution
Manager does not alert you to deliver backordered items sold by cash receipt when stock is replenished. Because the program assumes all cash sales are delivered at the time of transaction, it does not designate unfulfilled quantities as still needing to be delivered. Therefore, if you accept cash payment for inventory you do not have on hand, you will need a separate method to remind yourself to deliver the remaining quantity. You can, however, drill down on a negative quantity in the Inventory Items list to see transactions responsible for the backorder situation. And if a single transaction was responsible, it is easy to confirm who the backordered quantity (shown by a negative balance) should be delivered to.
Goods Receipts
Goods receipts provide capability that is a mirror image of delivery notes. That is, they record receipt of goods at a location or from a supplier. When the Goods Receipts tab is enabled, another column is added to the Inventory Items list showing quantity to be received. Now, the inventory picture is complete. Quantities purchased but not yet received are displayed, as are quantities on hand, which should be verifiable by checking stock. Quantities committed to delivery from previous sales and not available to sell to others are listed. Quantities still owned and available for sale without additional purchases or production are visible, too.
Example
Brilliant Industries is worried that some inventory may not be delivered immediately in the future. So it enables the Goods Receipts tab to track goods it is awaiting from suppliers. All its prior purchase invoice quantities now show as to be received. Quantities purchased with cash payments are assumed to have been delivered immediately:
Brilliant copies past purchase invoices and debit notes to goods receipts, and the quantities to be received are zeroed out. Quantities on hand now match quantities owned:
Note
Just as credit notes require delivery notes, debit notes require goods receipts. In like fashion, quantities entered through copying will automatically be negative.
Manager tracks partial receipts (and, for that matter, partial deliveries) as well as complete ones.
Example
Lumen Lighting orders another 6 cases of LED bulbs. But Brilliant has only 4 cases in stock, but thinks it can obtain more stock quickly and enters the sales invoice. That produces a backorder of 2 cases:
So Brilliant buys 5 more cases from ACME Distributing on credit, entering a purchase invoice, only to find out delivery will be delayed several weeks:
Hoping to keep a customer happy, Brilliant delivers the 4 cases it has on hand, entering a delivery note:
ACME surprises Brilliant, making a partial delivery of 3 cases, so Brilliant enters a goods receipt for that quantity:
Now Brilliant Industries can fulfill the remaining balance of 2 cases on its sales invoice to Lumen Lighting. It enters a delivery note for the final 2 cases:
Brilliant now has 1 case in its warehouse and awaits receipt of 2 more. When they arrive, it enters a final goods receipt for 2 cases and sanity is restored:
Note
Delivery notes and goods receipts are insensitive to workflow. Manager will allow you to receive or deliver goods before you have purchased or sold them. Negative quantities to be received or delivered may show in the Inventory Items list until covered by purchase or sales transactions. Quantities on hand and owned will be correct.
Caution
Think carefully before enabling the Delivery Notes or Goods Receipts tabs. Once you have started using them, you must continue. Manager will not allow you to disable the tabs after the first delivery note or goods receipt exists. All delivery notes and goods receipts would need to be deleted before the tabs could be disabled. The functionality these tabs provide can be very important for some businesses. But they also entail extra work every time an inventory item is purchased or sold or goods are returned. Consider creating a test company to explore whether they are truly necessary for your business. They can always be added later.
Inventory reports with delivery notes and goods receipts
Inventory reports available are not affected by activation of Delivery Notes and Goods Receipts tabs. All reports are based on items owned. Thus, they reflect purchases and sales, regardless of whether items have been received or delivered.
The effects of credit and debit notes are shown in the Adjustments column on the Inventory Value Summary. They appear in dedicated columns in Inventory Quantity Summary reports.
Inventory kits are not included in the Inventory Price List report. A list of inventory kit descriptions and prices can be obtained by exporting the Inventory Kits page in the Settings tab.