Closing the Month on Stock

This guide is for the stock controller and the accountant who close a month together. By the end of it, your closing stock figure will be one you can defend: the goods were received as they arrived, each one sits in the right month, the value follows a method you chose on purpose, and the slow stock has been looked at by a person. Plan on half a day at a normal month end. The year end takes longer, because of the full count.

BigLedger works out closing stock and cost of sales for you, company by company, when you run Month End Processing. It cannot tell whether the goods on the shelf were received honestly, whether a delivery on the 31st belongs to this month or the next, which valuation method suits the business, or whether a laptop two models old is still worth what it cost. Those are judgements, and this guide hands each one to a named person.

Meet GadgetSphere

GadgetSphere Sdn Bhd (GS) closes its books monthly. The finance manager at head office runs Month End Processing on the 5th working day. There is a storekeeper at each of the 22 branches, and three area stock controllers between them. Laptops lose value quickly: a model that sold for RM 3,999 in January sells for RM 2,999 by September, once its successor is on the shelf. That one fact drives Steps 6 and 7.

Step 1: Separate who holds the stock from who records it

The outcome: nobody can take stock and also make the records agree with what is left.

BigLedger checks permissions. It does not check whether one person holds two jobs that should be split. Separating them is the finance manager’s decision, and the permissions carry it out. GadgetSphere splits the jobs like this:

Job	Who	Must not also
Hold the keys, receive deliveries, key the goods receipt	Branch storekeeper	Finalise a write-off at the same branch, or be the only counter
Count	Two staff, at least one from outside the stockroom	Accept the result
Accept a variance and finalise the write-off	Area stock controller, or the finance manager above the limit	Count at that branch
Send a transfer, and receive it	The sending storekeeper, and the receiving storekeeper	Do both ends of one transfer
Reset an average cost	Finance, with a second person reviewing the journal	Review their own reset
Run Month End Processing and lock the month	Accountant	Key stock documents into a month they are closing

Where a branch is too small to split the jobs, the check has to come afterwards instead. The finance manager reviews every adjustment finalised last week, every Monday. See Step 7 of Counting Stock and Deciding What a Difference Means.

How you know it is right: once a quarter, the finance manager opens the permission sets for Stock Adjustment and Stock Transfer. They check that nobody holds FINAL on adjustments at a branch where they also keep the keys. Then they check that the Reset MA menus are hidden from everyone outside finance.

Step 2: Choose a valuation method, once, and know what it costs

The outcome: the closing stock figure uses a method your finance manager chose and your auditor has agreed.

BigLedger keeps a moving-average cost for every item and, where FIFO (first in, first out) is switched on for your account, a FIFO cost as well. Which one values your closing stock is a company setting, Inventory Closing Base On. If nobody sets it, it is the moving average. Only three of the options offered produce a figure: moving average, weighted average and FIFO. LIFO, replacement and manual cost are never filled in, so choosing one of them values closing stock at zero.

For GadgetSphere’s laptop in March (the arithmetic is on Costing Internals), cost of sales is RM 222,600 on moving average and RM 219,000 on FIFO. What each method is good for:

	Moving average	FIFO
What closing stock means	What the units cost on average	What the most recent purchases cost
When prices fall as a model ages	Old, dearer units stay blended in the average	Old units leave first, so closing stock is valued at the recent, lower prices
What keeps it right	Nothing extra. The average catches up by itself after a back-dated document	A rebuild after back-dated documents and returns. The FIFO rebuild runs only when someone starts it, through BigLedger support. Until then, FIFO costs after the back-dated date stay as they were
What it does not see	Nothing	Receipts other than a purchase invoice, a sales return or a positive adjustment. A GRN Stock In, a transfer in, or opening stock loaded another way gives FIFO nothing to consume

Two rules for whoever makes the choice:

Decide at the start of a financial year, and agree it with your auditor. Month End Processing values both the opening and the closing stock of a month with the method set when it runs. So a change made mid-year revalues opening stock in a way last month’s journal never did.
Before choosing FIFO, prove it is being filled in. Open ten sales lines from last month. If their FIFO cost is empty or zero, FIFO is either not switched on for your account or has no receipts it can see. Choosing FIFO then values closing stock from nothing. Ask BigLedger support before you switch.

Step 3: Receive what arrived, not what was ordered

The outcome: every unit in stock came through a door and was counted there.

Purchase GRN, or Purchase GRN Stock In, created from the purchase order

The goods receipt arrives with the ordered quantities already filled in. That makes it easy to confirm the order instead of counting the delivery. GadgetSphere’s storekeepers work in this order:

Count the cartons against the carrier’s note before signing it. Write any damage or shortage on the note in front of the driver.
Open the cartons and count the units without looking at the order. For phones and laptops, scan every serial number.
Only then open the receipt in BigLedger and change each line to the counted quantity. What is short stays open on the order for a later receipt. Damaged units are not received at all. Buying handles them with the supplier.

Two things in BigLedger reward this. A serial number that already exists in the company is refused at receipt. So a laptop scanned twice, or scanned under the wrong model, is caught at the door and not at the till. The opposite mistake shows up later: a serial that was never received is refused when a cashier tries to sell it. When that happens, the receipt is where the fix goes.

Know which document puts stock on the shelf. If your company receives on a plain GRN and the purchase invoice books the stock, goods received on the 30th and invoiced on the 3rd are on the shelf and not in the stock ledger at the month end. If it receives on GRN Stock In, the stock arrives at receipt and BigLedger posts a goods-received-not-invoiced accrual at the same time. Step 4 depends on which one you use. Use one pair for the whole company. Mixing the two counts a receipt twice.

How you know it is right: pick five receipts from last week. Each has the storekeeper’s count on the carrier’s note, and the quantity on the receipt matches the count, not the order.

Step 4: Put everything in the right month

The outcome: the stock ledger at midnight on the last day matches the goods the business owned at midnight on the last day.

BigLedger dates everything by the dates you give it. It cannot know that the lorry arrived at 11:40 pm on the 31st. Cut-off is the stock controller’s job, and GadgetSphere does it in seven parts:

Write down the last numbers. At close of business on the last day, each storekeeper records the last receipt number and the last invoice or delivery number, and sends them to the area stock controller. Anything numbered after them belongs to next month. Check it when the documents are keyed.
Deal with received but not yet invoiced goods. On the GRN Stock In pair, those goods are in stock and the accrual is posted. On the plain GRN pair, they are not in stock at all. List the open receipts on the last day. Then either have the invoices keyed and dated in the month, or expect the count to show those items as surplus. In the second case the accountant accrues the liability by journal, because nothing else will.
Look at the transfer queue. A transfer sent on the 31st and received on the 2nd belongs to the company, not to either branch. It sits at the company’s in-transit location, and the company’s closing stock includes it. Stock transfers can still be finalised in a locked month. That keeps a lorry already on the road from being stranded by a lock. It also means the transfer queue can change after you close, so read it last. Any line open longer than three days is a delivery that never arrived, or a receipt nobody raised. The receiving area controller chases it before the month is locked.
Date the count adjustments in the month. An adjustment line takes the moment it was keyed as its stock date. The header date is used only for the journal. A count on the 31st keyed on the 3rd therefore moves stock on the 3rd and posts the journal on the 31st. Key year-end adjustments on the count day, or load them by file import, which carries a date on each line.
Lock late documents out of a reported month, or re-run it. A purchase invoice back-dated into a closed month re-costs every later sale. Nobody keys a document into a month after it is reported without the finance manager’s approval. If one is approved, the accountant re-runs Month End Processing for that month and every later month, in date order.
If you close on FIFO, ask for the rebuild before Month End Processing. See Step 2.
Count what you own, not what you hold. Stock can be yours and not on your shelf: goods in transit, stock placed with a consignee, a demo laptop lent to a corporate customer. Goods can also be on your shelf and not yours: a supplier’s consignment stock. Stock at a consignee sits at a consignment location that belongs to your company, so it is in your closing stock. Agree it with the consignee’s statement. For anything lent out, keep a list the borrower has signed. Count a supplier’s consignment separately and agree it with the supplier’s statement. How it appears in your stock ledger depends on how consignment was set up for you, so ask whoever set it up before the year-end count, not during it.

How you know it is right: after the count, the only differences on the count report are ones Step 5 of the counting guide explains, and none of them is “a receipt keyed next month”.

Step 5: Close, prove, lock

The outcome: the stock account equals closing stock, and the month cannot move.

Financial Report > Month End Processing

Month End Processing works out cost of sales for each company: opening stock plus purchases, minus closing stock. It deletes and rewrites that month’s cost-of-sales journal every time it runs. Then:

Tie the stock account to closing stock. The balance on the stock account at the month end should equal the closing stock figure the cost-of-sales journal used. BigLedger writes the journal and does not compare the two. The accountant does, every month.
Tie closing stock to the count. At the year end, total the count sheets at cost and compare the result with closing stock. A difference means an adjustment is missing, or dated in the wrong month.
Lock the month in the Chart of Account applet’s fiscal-year settings. From then on, BigLedger refuses to finalise any document dated in that month, except stock transfers.

Step 6: Find the slow and the dead stock

The outcome: a list of stock that is not selling, with a decision against every line.

Stock Report > Stock Aging Report

The aging report assumes the oldest units leave first, and shows what is left by the month it arrived. Two things about how it counts matter before you trust it:

It reads only the movements between its From and To dates. Stock that arrived before the From date is missing from the report, so the oldest stock is the part you don’t see. Set From to the date you started using BigLedger.
Every movement that adds stock starts a new age. A laptop moved from GS-KV-01 to GS-PEN-01 in August shows as August stock at Penang, however long it sat in Klang Valley. A customer return comes back as new stock too. So a branch’s aging can look fresh because it receives other branches’ slow stock. Run the report for the whole company as well as for each branch.

BigLedger has no rule for “slow” or “dead”, and does not flag anything. GadgetSphere’s rule: no sale for 90 days is slow, and no sale for 180 days is dead. Each quarter, the area stock controllers send a list with a decision against every line:

Decision	When it fits	What it does in BigLedger
Move it to a branch that sells it	One branch cannot shift a model another sells	A transfer. It resets the age at the receiving branch, so mark it on the list
Return it to the supplier	The supply agreement allows returns	A purchase return. It takes the stock out at its own price, and that price can move the average
Mark it down	It will sell at a lower price	A price change. Nothing happens to the cost until Step 7
Bundle it, or give it away with a sale	An accessory or a superseded model	It leaves stock on the sale, and its cost becomes part of the month’s cost of sales
Write it off	It will not sell at any price	An adjustment to the damage account, as in the counting guide

How you know it is right: every item on last quarter’s dead list has a decision and a date, and nothing on it is still unmoved and undecided this quarter.

Step 7: Value it honestly

The outcome: nothing on the balance sheet is carried at more than it will sell for.

Stock is valued at the lower of what it cost and what it will fetch less the cost of selling it: its net realisable value. That is the accounting standard: MFRS 102, or Section 13 of MPERS for a private entity that reports under it. BigLedger has no net-realisable-value test and no provision for obsolete stock. It values stock at cost, by the method you chose in Step 2. The write-down is a judgement the finance manager makes each quarter and at the year end, from the list in Step 6. The auditor will ask to see it.

For GadgetSphere, 30 laptops from the superseded model cost RM 3,180 each (RM 95,400) and will now sell for RM 2,999 less about RM 150 of selling costs: RM 2,849 each, RM 85,470 for the 30. That is a write-down of RM 9,930. There are three ways to put it in the books, and each has a cost:

Route	What it does	What it costs you
Reset the average cost to RM 2,849 (Stock Adjustment > Reset MA)	Moves RM 9,930 from the stock account to the account you choose, and every later sale carries the lower cost	Permanent. It is company-wide, and later margins on that model look better by the amount you wrote down. Reversing it takes another reset
A provision journal: expense against a provision account shown under stock on the balance sheet	Leaves every cost in BigLedger alone. The provision is reviewed and changed each quarter	Nothing ties it to the items. The list behind it lives outside BigLedger and has to be kept with the journal
A manual closing value for the month in the company’s fiscal-year stock values (Chart of Account applet): the system’s figure beside a manual one, with a choice between them	Month End Processing uses your figure for closing stock, and next month’s opening, in place of the calculated one	The stock reports and the item costs still show cost, so the balance sheet and the stock reports disagree by the write-down, and somebody has to remember why

We have not settled which of these is the house answer (it is with the product owner). All three are legitimate. For a write-down that will probably reverse (a model with a price promotion coming), the provision journal is the easiest to undo. For a write-down that will not reverse (a model that has been replaced), the reset keeps the item’s cost honest for every later report.

How you know it is right: for the ten highest-value items on the dead list, the carrying value is no higher than the latest selling price, less the cost of selling. The finance manager has signed the list the write-down was based on.

What success looks like

Five checks, ten minutes, after the month is locked:

The stock account on the balance sheet equals the closing stock figure used in the month’s cost-of-sales journal.
The transfer queue has no line older than three days.
The last receipt number each branch wrote down on the last day is the last receipt dated in the month.
Ten sales lines from the month carry a cost under the method you chose. For FIFO, the FIFO cost is not empty.
The dead-stock list has a decision on every line, and the write-down is signed.

Common mistakes

Mistake	What you see	Fix
Receiving the ordered quantity, not the counted one	A shortage at the next count that nobody can place	Count first, then change the receipt lines (Step 3)
Plain GRN pair, invoice keyed next month	Surplus at the year-end count; closing stock understated	List open receipts on the last day, and accrue or key the invoice in the month (Step 4)
Keying the year-end adjustments on the 3rd	The stock moves in the new year, and the journal stays in the old one	Key on the count day, or import with line dates
Closing on FIFO without the rebuild after late documents	FIFO costs from before the late documents	Ask for the rebuild, then re-run Month End Processing
Choosing LIFO, replacement or manual cost as the basis	Closing stock is zero; cost of sales equals all purchases	Choose moving average, weighted average or FIFO
Reading branch aging only	Slow stock looks fresh after a transfer	Run the aging for the company too
Carrying superseded models at cost	An auditor’s adjustment at the year end	Step 7, every quarter