Inventory systems

Dear All,

I browsed to some of websites about accounting and there explained about inventory systems consists of perpetual and periodic. Could you pls tell me how to set the system in the navision especially perpetual inventory system, especially create its G/L account in the COA…? Because in the accounting, it explains that there will not be needed to create purchase account if the inventory system is perpetual. I expected so much your reply. Tks



You will anyway allways need a purchase account.

Otherwise you would not be able to post any purchases anymore.

… and I would like to quote a posting of Steve:

In accounting book, it tells that if the inventory system is perpetual, there will no need purchase account. in, it also describes as follows:

B. Perpetual inventory system. Under this system the Inventory account is continuously updated. The Inventory account is increased with the cost of merchandise purchased from suppliers and it is reduced by the cost of merchandise that has been sold to customers. (The Purchases account(s) do not exist.)

Under the perpetual system there is a [Cost of Goods Sold]( of goods sold) account that is debited at the time of each sale for the cost of the merchandise that was sold. Under the perpetual system a sale of merchandise will result in two journal entries: one to record the sale and the cash or accounts receivable, and one to reduce inventory and to increase cost of goods sold.

So, how to cope with the problem, because if the company doesn’t want to use purchase account because their inventory system is perpetual.



Hi Mark

If they do not want to use purchases NEVER buy anything. Just always book it in through a positive journal.

I do not believe your quote tells you the purchases account does not exist. If you buy something you need it, you could of course post it to inventory and really mess everything up! Perpetual in this sense is automatic cost posting, it is to do with the costs on the system being live rather than journalled on a closing, opening purchases scenrio. I guess your perpetual inventory does not mention having a sales account, does not mean you do not need one! [:D]

I strongly recommend you go on the financial training or do an accounts course based upon your questions. You seem to not understand the basic fundamental principals of accounts which is going to give you issues trying to configure a COA and understand the postings.

Always nice to be quoted [:D]

Hi Steven,

I don’t understand why the accounting consultant skip to use purchase account in the COA when he wants to implement Navision , I’ve told them that it must be exit but they said that Navision standard accounting is not same as in Asia, Indonesia, Malaysia or another. Then I check in my accounting book/lieterature, it also said that there are no purchase account if the system is perpetual. I am also thinking about auto cost posting but the definition are not match yet, so I don’t think I need to take accounting course as you’ve said because I have graduated from a course in accounting (1 years). So, I will try to take more detail on what the consultant needs and tell detail here next time.



Hi Mark

I naturally do not know all of the worldwide accounting conventions, but could you explain teh double entry book-keeping principles of booking in stock for me, does it go direct to inventory and creditors in Asia? Navision has additional accounts for purchases and direct cost applied but if you follow the “T” transactions through you will see they nett off to zero, so you can explain the processes easily. Additionally if the customer is not using exac cost reversing and is in a non-standard costed environment then there will be potential differences between purchases and direct cost applied as you purchasr something at “x” and get a credit for it at “y”. I am sure with your accounting experience you should be able to manually map the transactions into T accounts and understand what the transactions are that are being processed. Different systems work in different ways but if you can explain the accounting concepts and movement and reasons to an accountant then they all seem to understand it!

As far as I’m concerned the basics are all the same and the key is a basic understanding of double entry as Steve says. It is fairly common sense but can sometimes be over-complicated, 1 year is certainly not enough to understand it fully (theory and practice).

Is this a problem with definitions especially the term Purchase account. If using inventory, you will need a purchase account in the posting setup. However you will not need a general ledger account where you can post a purchase directly to (also possibly called a purchase account).

As indicated previously do not take what you read as gospel, especially where definitions may be different. With Navision setup your Chart of Accounts and then work back to the data input (but obviously you need an overview first).

Tks for your reply. Do you mean I will use the G/L account for inventory as purchase account…?



Hi Mark

In answer to how you have written that question the answer is no as that is the inventory asset account for the value. Have a look at what the purchases and dirtect cost applied actually does. Until you understand the postings you cannot really ask the questions you are asking.

Accounting Entry:-

  1. First Scenario - “with purchase account”

(let’s say purchase at 1000, sold 500 with 10% margin [550] and stock balance at 500)

(a) Debit Purchase account 1000

Credit Creditor 1000

(b) Debit Debtor 550

Credit Sales Account 550

In Profit and loss statement:-

Sales 550

Cost of sales

Purchase 1000

Closing stock (500)

-------- (500)

Gross profit 50


Second Scenario (without purchasing account)

(a) Dr Inventory account 1000

Cr Creditor 1000

(b) Dr Debtor 550

Cr Sales 550

(c) Dr Cost of Sale account 500

Cr Inventory account 500

Profit and loss statement

Sales 550

Cost of sales 500

GP 50