Migrate To Perpetual Inventory

In the present system, perpetual Inventory Valuation is activated automatically.

In case you have already prepared on the Periodic Inventory Valuation method and wish to upgrade to perpetual Inventory Valuation system, follow the following steps:

1. How to Migrate to Perpetual Inventory

To allow Perpetual Inventory a proper alignment must be made between the Stock in Hand Account and the **actual stock value of your Warehouse(s). The synchronization makes sure that the records of the financial accounting are reflective of the real-time value of the stock that the system is handling.

Prior to switching on Perpetual Inventory, follow the following steps:

Determine the Current Stock Value:

Run a **Stock Balance Report as of the migration date to get the world total value of the stock in all warehouses.
- Be sure that the formula of valuation (FIFO, Moving Average, or Weighted Average) applied in the report is in tandem with your company inventory accounting policy.

Compare with the Accounting Balance:

Check the balance in the trial balance or general ledger on the same date on the Stock in Hand Account account.
Comparison of the differences between the accounting balance and the actual stock value on the Stock Balance Report.

Create a Journal Entry for Adjustment:

In order to balance the Stock in Hand Account to the actual value, make a **Journal Entry of the amount of difference.
With this adjustment the balance you will open in the perpetual system will be correct.
Entry of the Journal against the **Expense Account (normally used in Purchase Invoices or Cost of Goods Sold).

Sample Journal Entry:

The cost of stock purchases was directly charged when Perpetual Inventory was not turned off, through the Purchase Invoices.
Once you have switched on Perpetual Inventory, you must reclassify the amount of this cost that is the value of the stock that remains in your warehouse.
```
Dr. Stock in Hand Account. XXX
Cr. Expense (Cost of Goods Sold). XXX
```

This journal entry shifts the value of the stock on hand from the expense account to the stock in hand account, making your books conform to the perpetual inventory system.

Reverse Case (if applicable):

If you had already been booking Stock in Hand Account in Purchase Invoices instead of Expense, then the adjustment entry may need to be reversed, depending on the balances.
```
Dr. Expense Account (COGS). XXX  
Cr. Stock in Hand Account. XXX
```

Enable Perpetual Inventory in Settings:

After performing the reconciliation and adjusting of the journals, go to the **Company settings and enable Perpetual Inventory.
When it is turned on, the next stock activities including Purchase Receipts, Delivery Notes and Stock Entries will automatically be posted in real-time accounting entries.

Verify and Reconcile:
- When starting, do a sample of transactions to ensure that stock and accounting records are being created in the correct way.

Compare the stock ledger and the general ledger report at regular intervals to make sure that they are in balance.

Prior to Enabling Perpetual Inventory

Prior to enabling Perpetual Inventory, verify that all Stock Accounts (Ledger Accounts) are correctly associated with the current Warehouses. This ensures that stock-related transactions automatically affect your accounting system once perpetual inventory is enabled.

At the Warehouse Level:

Stock in hand account can be pointed out in the warehouse master itself.
- This will prove handy when every warehouse has its own stock account of accounting and reporting.

At the Parent Warehouse Level:
- In case a given warehouse lacks a stock account, the system automatically will use the account in its Parent Warehouse.

This keeps the accounts consistent and reduces repetition in configuration of different sub-warehouses.

At the Company Level:
- When you have a Single Stock in Hand Account encompassing all Warehouses then define it as the **Default Stock in Hand Account in the Company master.

All the Warehouses that do not have a defined stock account will use this default account by default.

Journal Entry to Update "Stock Received but not Billed" Account

The "Stock Received but not Billed" account holds the value of received goods through a Purchase Receipt, for which however a Purchase Invoice has yet to be prepared. This account ensures that a correct representation of liabilities and inventory is maintained when switching to perpetual inventory valuation.

An Journal Entry will first have to be made in which this account will be debit and outstanding Purchase Receipts awaiting billing will be credited before making the activation of Perpetual Inventory.

Calculate the Pending Value:
- Run the report "Received Items Pending for Billing" from the Accounts module.

The report will indicate the value of products that are received but not billed on the date of migration.

Record a Journal Entry:
- Make a Journal Entry to carry this value to the Stock Received and not Billed account.

The journal entry will be made so that the correct books will reflect the in-transit stock value between the Purchase Receipt and Purchase Invoice.

Sample Journal Entry:
```
Dr. Expense Account (COGS). XXX  
Cr. Stock Received but not Billed. XXX
```

The cost value of stock received but not billed is moved to the Stock Received but not Billed account and your books are in harmony with the perpetual system.

Set Up the Following Default Accounts for Each Company

Prior to enabling Perpetual Inventory, inspect and set up the following default accounts under the Company master:

Stock Received But Not Billed Account

Applied to capture the value of received goods that have yet to be invoiced.

Stock Adjustment Account
- Used for capturing stock value adjustments due to reconciliations of physical stock, write-offs, or valuation adjustments.
Expenses Included in Valuation Account
- Applied for indirect costs that are included in the landed cost of the item, e.g., freight, customs duty, or insurance.
Default Cost Center

Used in classifying and tracking stock related costs and cost fluctuations in the organization.

Activate Perpetual Inventory

Once done with all the reconciliations, establishing stock accounts relationship, and setting up default accounts:

Navigate to: Home > Accounting > Company
Activate the Perpetual Inventory setting under the concerned Company.
Save your settings.

Perpetual Inventory

Once they are activated, all transactions relating to stock like Purchase Receipts, Delivery Notes, Stock Entries, and Stock Reconciliations will have corresponding accounting entries automatically generated in real time, providing a complete synchronization of inventory and financial records.