Question

As the owner of a company that sells inventory and non-inventory items, discuss with your peers how you would establish what you designate as inventory vs non-inventory. Draw from your understanding of accounting and not just the discussion as it relates to QuickBooks.

Answer 1

Despite what the names sound like, the choice between Stock and Non-Stock has nothing to do with whether or not you normally keep an item on hand, but everything to do with how you want to account for those items.

Stock items are what you normally think of as an inventory item. Sage 50 keeps track of how many you buy and sell, what they cost, and how many are on hand. When you sell a stock item, inventory is relieved and the related cost is associated with the sale so you can determine the profit for that sale. Because more information is tracked for stock items than for the other item types, stock items give you more reporting options. For example, the Inventory Profitability Report, Inventory Stock Status Report, Inventory Unit Activity Report, and Inventory Valuation Report will show your stock items (including serialized items and assemblies) but not non-stock or other item classes.

Non-stock items can be bought and sold, but they are not tracked in inventory like stock items are. That means there is no way to see if you have any on hand, and it’s much harder to find out how many were bought or sold, and what your cost is. When you sell a non-stock item, no cost gets associated with that sale so you can’t determine profit for that item (there is one exception that I’ll cover later). Non-stock items usually post to a cost of goods sold account or expense account at the time of purchase, so the the timing of that cost may not match the timing of the related income. Essentially, a non-stock item is just a way to make your data entry easier and is normally only used when you don’t want any type of inventory tracking for that item. A common example would be materials that are purchased for a specific job. They can also be used for non-sales related purchases such as rent or utilities so that the data entry person doesn’t have to remember which GL account to choose.

Now that you understand the differences in how they work, let’s look at the differences when setting up stock and non-stock items. I won’t go over every field for setting up a new item, just the ones that differ between stock on non-stock.

For stock items, Cost Method is a required field, you must choose FIFO, LIFO, Average, or Specific Unit (serialized). This is another field that you can’t change later. If you don’t know the correct answer, ask your CPA. Since non-stock items aren’t tracked in inventory, this field goes away when entering a non-stock item. Minimum Stock and Reorder Quantity are optional fields for Stock items but are irrelevant for non-stock items so they disappear too.

For both item classes, you have 3 GL accounts to enter. The first is the GL Sales Account. It works the same for both types and, just as it sounds, should be the income account that will be credited when selling this item.

The second account is labeled GL Inventory Acct for Stock Items but changes to GL Salary / Wages Acct for non-stock items. I know that description is confusing, just remember that this account is the account that gets debited when you purchase this item. For stock items it should be an inventory account. For non-stock items it is usually a cost of good sold account or expense account. There are situations in which you can use an inventory or asset account here for non-stock items but they are unusual and you should talk with me or another Sage 50 certified consultant first to make sure it will work they way you expect. For stock items, this account also gets credited for the cost of the item when it is sold.

The third account is the GL Cost of Sales Acct. For stock item, this is the account that gets debited for the cost of the item when it is sold. For non-stock items there usually isn’t a COGS entry, but an account is still required. I suggest setting it to a COGS account, or the same account that you used for the GL Salary / Wages Acct.

The last field that behaves differently for stock and non-stock items is Last Unit Cost. For stock items, the field will be greyed out after the first time you purchase it. Before then you can enter a last unit cost if you want, but the only time it would ever get used is if you sell one or more units of this item before you have purchased/received some into inventory. Once you have purchased this item, Sage 50 will display your last cost based on your actual purchase history.

For non-stock items, Last Unit Cost has a hidden, but very important function. In most cases you should leave the Last Unit Cost blank. If you enter a cost in the Last Unit Cost field, Sage will use it to make a COGS entry every time you sell this item. Sage 50 will credit the GL Salary / Wages Acct and debit the GL Cost of Sales Acct in the amount of the Last Unit Cost x quantity sold.