Returned Goods
If you are maintaining stock values in the Nominal Ledger, two complications can arise when a Customer returns an Item:
- On some occasions the goods will be returned to stock, but on other occasions they may not be. For example, the goods may be damaged and so you in turn will need to return them to your Supplier. The Retuned Goods register contains an Update Stock option that you can switch on or off depending on the circumstances
- The correct stock value of the returned Item can be difficult to calculate.
To help alleviate these complications, the
Cost Accounting setting contains several options controlling how Items will be received back into stock—
- If you are using a Queued Cost Model, returned Items can go back to their original positions in the FIFO/LIFO queue, or they can go to new positions, as if they were newly received Items;
- You can choose whether to retain the original stock value of returned Items (to copy it from Deliveries to Returned Goods records) or to use the standard Cost Price of Items in Returned Goods records; and
- You can choose whether the Weighted Average value of Items will be updated by Returned Goods.
These options are described in more detail on the pages describing the
Cost Accounting setting.
To maintain an accurate stock valuation it is recommended that you follow these steps when a Customer returns Items to you and when you need to issue Credit Notes:
- In a case where the Item being returned was originally issued on a Delivery raised from a Sales Order, return to the Sales Order or Delivery and enter a record to the Returned Goods register by selecting 'Create Returned Goods' from the Operations menu. You can then either issue a replacement using another Delivery or, if no replacement is required, create a Credit Note. You can do this using the 'Create Credit Note' function on the Operations menu of the Returned Goods record, or using the 'Create Credit Note' function on the Operations menu of the original Invoice. Stock levels will be updated by the Returned Goods record, as will stock valuations in the Nominal Ledger (if so specified in the Sub Systems setting in the Nominal Ledger).
- In a case where there is no Sales Order, you will originally have issued the Item being returned using an Invoice. You should first credit this Invoice, by opening it and selecting 'Create Credit Note' from the Operations menu. The Update Stock check box on the 'Delivery' card will be switched off automatically. You should not be switch it on again, especially if you are using a Queued Cost Model (FIFO or LIFO), as doing so will mean that the Nominal Ledger stock valuation will become inaccurate (the stock valuation may be updated with an incorrect FIFO value). Instead, approve the Credit Note (to update the Sales Ledger and the Debtor, VAT and Sales Accounts in the Nominal Ledger). Then, receive the Item back into stock using the Goods Receipt register in the Stock module. To find out the true value of the returned Item for entering in the Goods Receipt, refer to flip C of the original Invoice. This will correctly update stock levels and, if you have so determined in the Sub Systems setting, the Nominal Ledger stock valuation.
If you want to have this Goods Receipt created automatically, switch on the Goods Receipt from Credit Invoices option in the Optional Features setting in the System module. The Goods Receipt from Credit Invoices option is in the Unsupported Extra Features section of the Optional Features setting so it is recommended that you take great care if you use this option. The new Goods Receipts will be approved automatically, so there will be no opportunity to check or change the stock value. Goods Receipts will not be created from Credit Notes that are not linked to Invoices, because in this case the stock value of the Items will not be known (the FIFO field on flip C of the Credit Note will be blank).
In both cases, the Credit Note will credit the Invoice and update the Sales, VAT and Debtor Accounts, and a stock transaction (Returned Goods or Goods Receipt) will update stock levels and the stock valuation in the Nominal Ledger.
In some circumstances, you can update stock levels and the Nominal Ledger stock valuation from Credit Notes. You may wish to do this if you always issue Credit Notes when goods are returned to you (which means you must already have invoiced those goods). If you want to use this system, switch on the Credit Notes Update Stock option in the Optional Features setting in the System module. Again, the Credit Notes Update Stock option is in the Unsupported Extra Features section of the Optional Features setting so you should only use it with extreme care. It may introduce inaccuracies into your stock levels and/or Nominal Ledger stock valuation. Bear the following points in mind:
- If you created an Invoice without a Sales Order, you can create a Credit Note from the Invoice by duplicating the Invoice or by using the 'Create Credit Note' function. The Credit Note will update stock levels and the Nominal Ledger stock valuation. The Returned Item(s) will be inserted as a new item in the FIFO/LIFO Queue, irrespective of the option chosen in the Cost Accounting setting.
- If you created a Delivery and Invoice from a Sales Order, there are various methods of receiving the Items back into stock and issuing a Credit Note. If you are using the Credit Notes Update Stock option, you should take extreme care. You will not be able to use every method because some will introduce inaccuracies either to stock or to the Nominal Ledger.
- You can create a Returned Goods record from the Delivery or from the Order, and then create a Credit Note from the Returned Goods record. The Return will update stock levels and the Nominal Ledger stock valuation. The Returned Item(s) will be inserted as a new item in the FIFO/LIFO Queue or replaced in its original position in the queue, in accordance with the option chosen in the Cost Accounting setting. The Update Stock box on the 'Delivery' card of the Credit Note will be switched off by default when you create it from the Returned Goods record, so the Credit Note will not affect stock levels or the Nominal Ledger stock valuation.
- You can create a Returned Goods record from the Delivery or from the Order, and then create a Credit Note by duplicating the Invoice or by using the 'Create Credit Note' function from the Invoice screen. In this case, the Nominal Ledger stock valuation will be updated twice, once from the Return and once from the Credit Note. The Returned Item(s) will be inserted as a new item in the FIFO/LIFO Queue or replaced in its original position in the queue, in accordance with the option chosen in the Cost Accounting setting When you are using the Credit Notes Update Stock option, the Update Stock box on the 'Delivery' card of the Credit Note will be switched on by default when you create it using this method. To prevent the Credit Note updating the Nominal Ledger, you can switch off the Update Stock box.
- The danger in step ii is that you will not remember to switch off the Update Stock box on the ‘Delivery’ card of the Credit Note. To avoid this danger, you can also switch off the Returned Goods option in the Sub Systems setting. The Return will now only update the stock level, and the Credit Note will update the Nominal Ledger stock valuation. However, a new danger will occur if you now create the Credit Note from the Returned Goods record. The Credit Note will not update the Nominal Ledger unless you remember to check the Update Stock box on the 'Delivery' card.
- If you create a Credit Note by duplicating the Invoice or by using the 'Create Credit Note' function from the Invoice screen (i.e. you do not create a Returned Goods record), the Credit Note will not update stock levels, but it will update the Nominal Ledger stock valuation.
You cannot use the Goods Receipt from Credit Notes option and the Credit Notes Update Stock option together. If you try to use them both, the Goods Receipt from Credit Notes option will take precedence and the Credit Notes Update Stock option will be treated as being off. For similar reasons, the Credit Notes Update Stock option will also be treated as being off if you are using the Invoice Based On Delivery option in the Order Settings setting.
