Basic Inventory Accounting in Tally

Inventory System

So far we have explained maintenance of Financial Accounting System for accounting of money only. However, in a business system, materials are another Important resources of business transactions. So, a businessman need to maintain records of transactions of Stock Items also (called Inventory System). The Basic Inventory System contains following components.

Inventory Master : To create Unit of Measure, Stock Group & Stock Item Masters
Inventory Voucher / Invoice / Point of Sales: To enter Inventory voucher / Invoice in respect of Purchase, Sales & transfer of stock, Sales & Purchase Returns. Adjustment of Party Accounts due to Rate Difference, Rebates, Claims etc
Voucher / Invoice Printing : Printing of Inventory Voucher / Invoice
Inventory Reports : To print various Inventory reports (Day Books of Sales , Purchases, Debit & Credit Notes, Customer & Supplier Ledgers, Stock Item Ledgers, Stock Statements etc)

Inventory System Activation in Tally

To maintain Accounts with Inventory system, Click F11:Features>Accounting Features and set No at Maintain Accounting Features.

Consequently, various options relating to Inventory get activated at Menu, Company Operations options, Configuration options and Button Bar and other places.

Trading transactions in Tally

The Trading transactions involve activities of Buying of Goods (Purchase Invoice), Selling of Goods (Sales Invoice), Return of Bought Goods to Supplier (Debit Note), Return of Sold Goods from Customers (Credit Note) and adjustment of Stocks/ transfer of Stocks (Stock Journal)

From the point of view of maintaining Customers & Suppliers Accounts, Trading transactions Sales & Purchase activities may be broadly classified as 1. Cash Sale & Cash Purchase, 2. Credit Sale & Credit Purchase, 3. Sales & Purchase Returns

Cash Sale & Cash Purchase recording In Tally

– Cash Sale : The simplest case of Sale is to sell from showroom. The customers come to showroom and buys goods. The seller makes a Sales Voucher (normally referred as Cash Memo). The seller collects the money & delivers the goods.
The Cash Sales transaction updates both Inventory (stock is updated) and the Accounts (Sales & related Accounts) are updated.
In case of Cash Sales, accounting becomes simpler as records for Debtors need not be maintained.

– Cash Purchase : The simplest case of Purchase is to purchase from showroom. The buyer goes to showroom and buys goods. The seller makes Cash Memo for goods sold, The buyer pays the money & collects the goods.
The Cash memo given by the seller becomes the Purchase Voucher for the buyer. The buyer records the Purchase Voucher in his accounts.
In case of Cash Purchase, accounting becomes simpler as the buyer does not have to maintain records for Creditors.
The Cash Purchase transaction updates both Inventory (stock is updated) and the Accounts (Purchase & related Accounts) are updated.

Credit Sale & Credit Purchase recording In Tally

However, in business, most of the trade transactions are done on Credit. The Sale / Purchase transaction and the related Payments occur at different stages.

On sale of goods, the seller issues a Sales Invoice on the buyer. The buyer records the Invoice issued by the seller in his books as Purchase Invoice.

Subsequently. the buyer makes payment of the Invoice to the seller, creating a Payment Voucher. On receiving the payment from buyer, the seller records it in Receipt Voucher in his books.

Sales & Purchase Returns recording In Tally

Sometimes, the Buyer may return the goods to the seller (due to defect or some other reasons). In such case, the Buyer, who returns the goods makes a Debit Note on the seller whom the goods are retuned to, and the seller, who receives back the sold goods, makes a Credit Note on the Buyer who returned the goods.

Stock Journal Voucher in Tally

Stock Journal is used to make rectification or other adjustments in Stock (e.g to make adjustments for shortage, breakage, damage, evaporation, melting/moisture loss/gain, shrinkage and other shortfall/ gains). It does not affect Customer, Supplier or any other ledger account. It only affects the book stock (stock ledgers)

Inventory Masters in Tally

Masters reflect the plan how the transaction data are linked to a central entity to track all the related information resulted from the transaction. So, to get the information related to a Stock Item (say a TV), an entity called Stock Item is to be created which would contain the particulars of the Stock Item.

The data of all regular business transactions are linked to Masters so that any info may be obtained with reference to the Master. For example, to get the information of Stock Item, we would create an entity called Stock Item master.

So, in a business system, the Masters are to be created first and all the transactions would refer to a Master.

So, planning the Masters and entering necessary initial info about the Master, are the crucial point of maintaining the Inventory System. Where there are large Number of Maters, the Masters data need to be organized according to the reporting needs of the business. In such case, a well thought out plan of organising the masters into Stock Groups is to be made.

Accordingly, the Stock Groups are to be planned, organised to get the reports in a way required by the business entity. So, planning and creation of master data is entirely organisation specific and varies from one organisation to another.

Tally ERP 9 provides the means to organise and maintain Inventory Master data in multilevel hierarchical structure, by user, in their own way. To maintain the basic inventory system, master records for 1.Unit of Measure 2. Stock Groups and 3. Stock Items are to be created.

Units of Measure

As money is measured in terms of Currency, Stock Item is measured in terms of Unit of Measurement (popularly called as Unit or UoM). Various Units (UoMs) are used for Stock Items.

Normally, a Stock Item is measured in one Unit (Unit of Measure). While creating master for Stock Item, you need to specify unit for the item. So, before creating stock items, the applicable Units for each Item must be ascertained.

Value of Unit of measure may be expressed in fraction also, in specified precision, upto 4 places to decimal (e.g 3.492 Kg).

In some special cases (like Service Items), a Stock Item may not have any Unit associated with it.

Stock Item Groups

For better organisation of the hundreds & thousands of Stock Items that are stocked & traded by an enterprise, you may organise the stock items into appropriate Stock Groups, to get the summarized and organised reports for each level of Stock Group. So, Stock Group is Master of Masters (a higher level Master)

The relationship between Stock Item and Stock Group is similar to that of Accounts Ledger and Accounts Groups. So, only Stock item moves in or moves out and stock group never participates in any Inventory voucher, Stock Groups merely help to organise the Stock Items.

Stock Items

Stock Item is the identity of traded goods, for which quantitative details of Materials transactions (materials In & Out) & Stock-in-hand are maintained in the Inventory System. If a book is purchased by bookseller for trading, or by a Library for Lending (and the stock accounts are maintained), it is Stock Item. If the book is purchased for study and no stock is maintained in the stock accounts, it is not a Stock Item for our discussion in this book.

However, sometimes, a Stock Item (called Service Items) may be created for Billing / Accounting, even if no Stock is maintained.

Stock Items are the actual items that are transacted (received, issued or produced) and take part in any Inventory Voucher. For better organisation of large number of Stock Items, Stock Items are organized into Stock Groups in an hierarchical structure (parent – child structure)

As Accounts Ledger participates in Accounts transactions (voucher), Similarly, Stock Items take part in all Inventory Transactions (Vouchers).

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