Katana supports detailed record-keeping of stock movements for accounting purposes, ensuring inventory and financial data alignment. This guide explains how to integrate stock data from Katana into accounting software, covering scenarios like immediate expense recording and periodical stock adjustments. This integration is crucial for maintaining accurate financial records and complying with accounting standards.
If you record material purchasing and personnel costs in accounting when costs occur, but you haven't recorded any stock or Cost of Goods Sold (COGS) in an accounting software, you can record them based on data available in Katana. Depending on your accounting principles and income statement structure, there are different ways to handle stock in accounting:
Don't track stock in accounting
Record journal entries in accounting software periodically in case you track COGS in your income statement.
TIP: Katana provides real-time stock management and statuses, so if it's not required by accounting principles, you may not need to track stock in accounting and can just rely on Katana for stock management, even if you are used to tracking stock in accounting.
Approach #1 - Don't track stock in accounting
If you're not required by your local accounting principles and rules, we suggest you don't keep track of stock levels in accounting at all. Simply use Katana for tracking and managing stock levels for products and materials.
Pros
You will always have a real-time stock status available in Katana, no need to duplicate it in accounting.
Easy to manage as you don't need to record any stock-related entries in accounting. Just record sales and expenses when they occur.
Cons
Cannot be used if stock tracking is required by local accounting principles.
Approach #2 - Periodically record journal entries in an accounting software
If you need to track stock in accounting, you can periodically create manual journal entries based on information available in Katana to keep your stock up-to-date in accounting. The frequency of making these journal entries depends on your requirements and preferences - weekly, monthly, quarterly, or yearly, for example.
If you are using an income statement schema where COGS is recorded, create the journal entries below to update your stock in the balance sheet and expenses in the income statement.
In the following example, adjustments are made on a monthly basis and, prior to the journal entries, stock or COGS for the period aren't recorded. All material and salary expenses were recognized when they occurred. The Income Statement for the last month looks like this:
Balance sheet as at the end of the period:
Required journal entries in accounting
If you recorded all purchased items directly as expenses during the period, add all purchased items to stock. Create a journal entry for increasing the stock and decreasing material expenses by the total amount for the period.
If you're recording material and finished product stock on different accounts in accounting, decrease the material stock by the amount used in production during the period and increase the finished product stock.
Note: if you have a single account for all stock in your balance sheet, you can skip this step.
In Katana, go to Make screen > Schedule tab > Done table. Filter the orders by the Done date column, keeping only the orders for "Last month". Then, find the Materials cost for those Manufacturing orders.
In accounting, create a journal entry for decreasing the stock for materials and increase the stock for finished products by the same amount.
Note: if you are recording material and subassembly stock on different accounts in accounting, look for further instructions below.
Add operations cost (e.g. employee salaries) to the finished product stock cost in accounting. Decrease the salary cost in the income statement and increase the finished product stock by the relevant amount.
In Katana, on the Done manufacturing orders table, where you have filtered out orders completed last month, find the Operations cost column.
In accounting, create a journal entry to decrease the salary cost in the income statement and increase the stock cost for finished products by the same amount.
Decrease the stock of finished products by the amount sold during the period and increase Cost of Sales account in the income statement.
In Katana, go to the Sell screen > Sales orders tab > Done table and filter the orders by Picked date, keeping only orders for "Last month". Find the "COGS" amount for those sales orders.
In accounting, create a journal entry for decreasing the stock of finished products and increase the Cost of Sales.
Create a journal entry to reflect stock movements related to stock adjustments in Katana. For example, let's assume that a product with an Average Cost of 886.9 USD breaks, and a stock adjustment is created to reduce the stock in Katana.
In Katana, go to the Stock screen > Stock adjustments tab and filter the adjustments by Adjusted date, keeping only adjustments for "Last month". Find the "COGS" amount for those sales orders.
In accounting, create a journal entry for adjusting the stock and record income or cost related to the case.
Examples of corrected income statements and balance sheets
After the journal entries, your income statement for the last month would look like this...
... and your balance sheet should look like this:
What if you are using subassemblies?
If you're using subassemblies and a separate account for subassembly stock in accounting, you first need to convert materials into subassemblies and then those subassemblies to finished products. You also need to do additional steps that are similar to recording movements for materials and finished stock.
If you record material and subassembly stock on different accounts in accounting, decrease the material stock by the amount used in subassembly production during the period and increase the subassembly stock. Filter the Done manufacturing orders table to keep only subassemblies produced during the period, and then record the respective stock movement in accounting from the material stock to subassembly stock. Check the total materials cost for subassembly manufacturing orders and convert the materials to subassemblies in accounting in the respective amount (similar to step 2 above).
Tip: For easy filtering of the manufacturing orders list, we suggest using distinctive product names or manufacturing order numbers for subassemblies so that the relevant rows would be easily identifiable on the list.
Add operations cost to the subassembly stock cost in accounting. Find the operations cost in Katana for the completed subassembly manufacturing orders for the period, decrease the salary cost in the income statement and increase the subassembly stock by the relevant amount in accounting (similar to step 3 above).
To get the correct numbers from Katana for recording the production of finished products from subassemblies and materials, you first need to eliminate the materials cost related to subassemblies from the total materials cost of all completed manufacturing orders during the period in Katana (find the total materials cost and deduct the materials cost for subassemblies that you used above). Otherwise, you would count the materials cost twice. Then create a journal entry in accounting for converting the materials into finished products. Also create a journal entry for converting the subassemblies used in the production of finished goods, using the subassemblies cost from Katana as the amount.
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