Pastel Overview of Inventory Integration
When you process sales or purchase transactions, Pastel updates a customer control account or a supplier control account in the general ledger.
To keep the general ledger in balance, Pastel creates a contra entry. This is called general ledger integration.
You can use two methods of integration:
· Partial integration
Sales transactions update an income statement sales account, and purchase transactions update an income statement purchases account. Inventory does not integrate into the general ledger.
· Full integration
With this method Pastel maintains an inventory balance sheet account. This reflects the cost value of your inventory.
This method is sometimes called the perpetual inventory method. Pastel creates additional entries to the general ledger to achieve full integration.
For example, when an item is sold, the cost value of the item moves from the general ledger inventory account to a cost of sales account.
If you are not fully integrated, the general ledger will not reflect any inventory activity. If you want to see a meaningful balance sheet, you need to manually enter journals to bring the inventory account up to date. You would derive the value of these journals from your inventory reports.
Which Method Should You Use?
There is no simple answer to this question. Here are some considerations:
· If you are primarily a service organisation, and you do not sell many physical items, do not integrate inventory
· If you mainly sell physical goods, you should consider integration
· If you control your inventory accurately, and you do not allow the theoretical quantity on hand to be negative, you should integrate inventory
· If your theoretical quantity on hand is often negative, and inventory costs vary considerably, non-integration is a better way to go.
Changing Integration Methods
You can turn integration on or off at any time. However, if you do so, you will create a confusing situation in your general ledger.
If you decide to change this field, you should do so at the start of a month. When you produce financial statements, you will then at least know which months include inventory and which months exclude inventory.
If you switch from non-integrated to integrated, you must put through an adjusting journal to your inventory control account(s) to reflect the cost value of your inventory. The contra account would be a purchases account linked to the cost of sales financial category.