Introduction to Opening Stock and Stock Reconciliation
Welcome back to Frappe School. This is the third chapter of our Inventory Management course. In this chapter, we will be discussing opening stock balance and stock reconciliation. By the end of this chapter, you will learn how to add opening stock and how to do a stock reconciliation.
Whenever we migrate from any legacy software to ERPNext, we will have to upload the closing stock from the legacy system as opening stock in ERPNext. This provides a snapshot of stock position as of the cutoff date. The cutoff date is the date after which you would like to start recording transactions in ERPNext. For example, if you would like to start transacting in ERPNext from 1st April, the cutoff date would be 31st of March.
Next, let's understand what is stock reconciliation. It is a process of reconciling the physical stock as found in the physical warehouses with the system stock in ERPNext. The physical stock and the system stock may vary for various errors and omissions, which is accounted for in the stock reconciliation. To do stock reconciliation, you will have to do a physical count of stocks in your warehouse and then compare it with the stock in the system.
Adding Opening Stock with a Stock Entry
Now let us take a look at how to add opening stock and do a stock reconciliation on ERPNext.
Before we take a look at opening stock, there are some prerequisites that we need to make sure are configured in our system. Let's open an Item Master, for example. Here, when we are adding a new item, we need to ensure that the 'Maintain Stock' checkbox is selected. This will help us while managing stock. We can even make sure that all the units of measurement we have added are correct.
There are two ways in which we can add opening stock to our system. The first one is using a stock entry. A stock entry essentially lets you record item movement between warehouses. In this case, we can use it to add an opening stock. If we are creating an opening stock for serialized items, we need to create batch and serial number records beforehand.
Let's now navigate to the Stock Entry list using the awesome bar. Here we can see a list of all previously created stock entries in the system, and we can add a new one by clicking on 'Add Stock Entry' button. The first thing we need to do is define the stock entry type. In this case, we have to select 'Material Receipt'. Next, we need to select the warehouse we want in the 'Default Target Warehouse' field. In the items table, we need to add the items along with their item code, quantity, and basic rate.
If these are serialized or batched items, we will need to add or select the serial and batch numbers respectively. Once done adding all our details, we can save and submit this stock entry. We can see that this creates a transaction in both the Stock Ledger, where it shows movement of items, and even in the Accounting Ledger.
Adding Opening Stock with Stock Reconciliation
Stock reconciliation is the process of counting and evaluating materials periodically every year. This is done to keep an accurate record of actual physical stock and make sure that the system stock count is in sync with it. Using stock reconciliation, we can update the stock for any specific item or items in a warehouse at one time. We can also add serialized and batched items.
We can navigate to the Stock Reconciliation list using the awesome bar. Here we can see all previous reconciliation entries, and we can add a new one using the 'Add Stock Reconciliation' button. First, we need to set the 'Purpose' field to 'Opening Stock'. Once we do, we can change the posting date and time if needed by selecting the 'Editing Posting Date and Time' checkbox. In the items table, we need to select the item code, warehouse, quantity, and valuation rate. If serial and batch numbers are involved, we can add them too. Please note that for this to work, the item master has to have 'Maintain Stock' enabled. We selected this in the Item Master in the beginning of this chapter.
We can select the temporary opening account as the difference account. Once we have added all other details, we can save and permanently submit this stock reconciliation. We can see the Stock Ledger and Accounting Ledgers for records of transactions.
Now that we have added opening stock for items, let's also see how we can carry out stock reconciliations in ERPNext. Stocks in our system should be in agreement and accurate to the actual stock in our warehouses. If they are not, we can use the stock reconciliation feature to reconcile stock balance and value with actual amounts.
We can navigate to the Stock Reconciliation list and click on 'Add Stock Reconciliation'. This time, in the 'Purpose' field, we will set it as 'Stock Reconciliation'. If we want, we can edit the posting date and time by selecting the 'Edit Posting Date and Time' checkbox. In the items table, we can select the item code and the warehouse. The other details like quantity and valuation rate will be fetched automatically. We can change the quantity if required, as per what stock is present. We can even upload the data for the items table. We can download this template in a .CSV format by clicking on 'Download'. Once we do, we can enter data in the template. We can add item codes, quantities, and warehouses. Once done, we can upload the completed CSV file by clicking on the 'Upload' button.
In the 'Difference Account' field, 'Stock Adjustment' is set by default. Once we've added all details, we can save and permanently submit this stock reconciliation. Now we can open the stock ledger to check for the updated stock balance.
Example 1: Impact on Back-Dated Transactions
Once a stock reconciliation has been completed and has updated the quantity for a specific date and time for a particular item, it will not be modified by any subsequent transactions, even if these transactions have a posting date prior to the posting date of the reconciliation. In other words, back-dated transactions will not change stock after a stock reconciliation has been posted. Let's see a few examples.
Let's consider an item in the Stores warehouse. Let's assume that stock as on 6th July is 1000 units. We post a stock reconciliation on the 8th of July to set stock balance to 1,500 units. In this case, the Stock Ledger would look as shown here. If we add a new purchase receipt entry for 200 shares on the 7th of July, which is prior to the date of stock reconciliation entry, the Stock Ledger would look like this. As we can see, the stock balance for 7th July was updated from 1,000 to 1,200, but the stock balance for 8th July did not update from 1,500 to 1,700.
Example 2: Reconciling Serialized Items
Let's take an item that has 10 serial numbers with a valuation rate of 200 per serial number. At the end of the month, we see that the actual stock only has three serial numbers with a valuation rate of 300. So to remove old serial numbers and valuation rates and to add new ones, we can use stock reconciliation.
When we open Stock Reconciliation, we can first select the item. When we do, the existing serial numbers will be fetched automatically. Next, we will set the quantity as 5 and the new valuation rate 300. We can add new serial numbers here, as we can see.
Before reconciliation, the valuation rate was 200 and the available quantity was 10. So the total stock value was 2,000. After reconciliation, the valuation rate changed to 300 and the available quantity was changed to 5. So, according to the new stock value, it is 1,500. So accordingly, the total stock value becomes 1,500. To adjust this in our accounting, the system will credit the extra amount to the warehouse's account and debit the stock adjustment account. We can see the general ledger entries like this. We can click on the 'View' button and then click on 'Accounting Ledger' to check the general ledger and then the Stock Ledger. We can click on the 'View' button and then click on 'Accounting Ledger' to check the stock balance after we submit the stock reconciliation.
Example 3: Reconciling Batched Items
We can use stock reconciliation for batched items to add a new batch or to update the quantity of an existing batch. For example, this batch currently has quantity as 60, but if we want to change it to 100, then we can use stock reconciliation and update the batch quantity.
Let's try it out. Let's open a stock reconciliation and add the item with its batch number. Now let's change the quantity of this batch from 60 to 100. Let's save and submit this. Once we submit, we can open the Batch-wise Balance History report to see the changes we just made using stock reconciliation.
Conclusion
This brings us to the end of the third chapter of Inventory Management. I hope this helped you understand how to add opening stock and reconcile stock on ERPNext. You can learn more about ERPNext on docs.erpnext.com. In the next chapter, we will discuss Purchase Receipt and Landed Cost Voucher. Thank you.
