On sales documents like Invoice - Waybill, Receipt, Waybill and Credit Invoice plus purchase document Purchase Invoice or with separate document types Purchase Waybill and Purchase Invoice - Waybill all have Inventory Transaction date. It’s also on Inventory Registration, - Write-Off and - Transfer documents. Often asked question is, why is that date not changeable? The answer is FIFO (first in first out). Here’s an explanation of what it means.
FIFO
First In, First Out, commonly known as FIFO, is an asset-management and valuation method in which assets acquired first are sold, used, or disposed of first. For tax purposes, FIFO assumes that assets with the oldest costs are included in the income statement's cost of goods sold (COGS). The remaining inventory assets are matched to the assets that are most recently purchased or produced.
The advantages to the FIFO method are as follows:
- The method is easy to understand, universally accepted and trusted.
- FIFO follows the natural flow of inventory (oldest products are sold first, with accounting going by those costs first). This makes bookkeeping easier with less chance of mistakes.
- Less waste (a company truly following the FIFO method will always be moving out the oldest inventory first).
- Remaining products in inventory will be a better reflection of market value (this is because products not sold have been built more recently).
- Higher profit.
- Financial statements are harder to manipulate.
The FIFO method gives a very accurate picture of a company’s finances. This information helps a company plan for its future.
How does this come into the Inventory transaction date?
Inventory transaction date appears on the document at the moment of clicking Confirm. That’s the date that is confirmed for the stock to either move out from your warehouse or come in. How FIFO comes into changing this date is that if you would be able to change the date let’s say to a week ago, but in between that time you’ve made other sales or purchase documents then that document wouldn’t be correct anymore.
Example:
You bought 20 pcs of product X with a price of 10€ on Monday. On Wednesday you sold 10 pcs to one customer at 10 pcs to another customer. Both with a product cost 10€. On Thursday you bought 20 pcs again of product X, but with a price of 15€ this time. On the same day you create a sales document for 20 pcs of product X that you want to add on Tuesday instead of Thursday. On Tuesday you had the product X with a price 10€ but now with a price 15€. Correct would be then to sell those 20pcs with a price of 10€ and change the two invoices made on Wednesday to 15€. That would mean that the reports would change for that month, the sales profit for the Wednesday invoices would change and imagine creating a document today to last month. It would change your reports that your bookkeeper has finished already and at the end of the year you would need to start tracking down why the reports are not matching.
That is the reason why Inventory Transaction date can not be changed, to avoid any human mistakes and keep your bookkeeping correct.