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Community > Accounting >

Sample / Promotional Inventory

Started by Heather Smith -   in Accounting

Inventory has been given away as promotional.

In my mind that is reflected as:-

Advertising DR
Inventory CR

The only way I can think of to deal with this in XERO is via a manual journal...

Any other suggestions?

Raise an AP with two lines against name of company that it was given away to (if you want to track at that level. First line Dr expense, second line Cr inventory. Nil balance. Nice and traceable via reports.
 

Cassandra Scott  

OK - your up late Cassandra! You win the chocolate box :)
 

Heather Smith  

Lindt is my favourite :-)
 

Cassandra Scott  

If you want to be lazy then you could just ignore it and let ut wash out in the COGS at the end of the year. It would depend on how precise you want to be.
 

Peter McCarroll  

True Peter, you could just be lazy, but its not what I would consider to be best practice, and over the course of a year, there could be a significant value of stock associated with "promotional" activities, that could erode the profitability and margins of a business.

With Xero being used to give real time, up-to-date and accurate information, to business owners, there really is no reason why this transaction should not be bought to account as it occurs.
 

Cassandra Scott  

yes, consider my hand slapped, Cassandra 8-P
 

Peter McCarroll  

Lindt is my favourite :P
 

Cassandra Scott  

I did not understand the solution given by Cassandra. Did he mean raise AP (Acct payable) and then First line Dr expense, second line Cr inventory? how can you raise AP when one cannot mutually work with AP in manual journal section.
 

Isidore Fondwi  

Hi Isidoref

You use the AP transaction in lieu of the Manual Journal. It means that users who only have standard access can initiate it, and potentially approve (depending on access levels), and the results are still the same, but with the ability for the transaction to be still linked to the Supplier.
 

Cassandra Scott  

Im not sure what you are suggesting, can you simplify the answer for me please.
I have raffled 20 products in one prize to our customers and now need to reflect this in Xero
Thanks
 

Wendy Gordon  

Wendy, I am assuming here that the stock is already included in your Purchases account, and that you have seperately accounted for the revenue from the raffle. The easiest answer is to create a Manual Journal as follows (assuming $500 cost)
Debit Promotional Expenses (Expense - may need a new code) $500 No GST
Credit Purchases $500 No GST

Alternatively, you could create a Supplier Bill +500 Promotional Expenses; -$500 Purchases (all no GST) to total 0.00

Peter.
I offer live remote Xero support. I am a Xero Certified Advisor and Xero's award winning Most Valuable Professional. I support small businesses in NZ with professional accounting services and offer paid Xero support and implementation advice to clients all over the globe. Get a Xero MVP on your team! I'm an NZ and Canadian Chartered Accountant, business advisor and add-on Developer.
Visit my blog for various Xero articles.
 

Peter McCarroll  

Thanks Peter
 

Wendy Gordon  

I just raise an invoice for the supplier, enter the inventory item and discount it 100%, with no gst and put it under an expense account called samples. Is this going about it the right way?
 

Rodger Tynan  

@Rodger - this should be in a new thread. Sounds like your contact defaults and/or inventory item settings are not set correctly.

Peter.
Xero Certified Advisor, NZ Chartered Accountant and Xero's award winning Most Valuable Professional. I provide small business accounting support for growth-oriented businesses in New Zealand and implementation advice to clients all over the globe. Get a Xero MVP on your team! Visit my blog for various Xero articles.

You can book a live remote Xero support session with me for a very reasonable price.
 

Peter McCarroll  

Hi there, I am running a wine importing and retailing company. I started to trade two weeks ago, and I plan to have a lot of private tasting events. Sometimes my clients/prospects will pay for the samples, sometime not, I will offer the samples to them. In that last case, how do you enter the data in Xero? I have an account for samples, which help me tract my spending on samples as an expense.

Thanks for your help

Alex
 

Alexandre Rougeot  

Alexandre,

Please see my response to Wendy above - it is exactly the same scenario as you are looking at. You will simply calculate the value of the inventory that you have used as part of the tastings and create a Manual Journal to debit Samples and credit Purchases.

Peter.
Xero Certified Advisor, Canadian CPA & New Zealand CA and Xero's award winning Most Valuable Professional. I give implementation advice to clients all over the globe. Get a Xero MVP on your team! Visit my blog for various Xero articles.

You can book a live remote Xero support session with me for a very reasonable price.
 

Peter McCarroll  

Peter,

Thank you for clarifying that point. I have billed my company with the value of the samples under the account sampling and payed with the inventory account (here packaging) to credit it. It shows up nicely in the PNL. Is that a good solution?

Best regards,

Alex
 

Alexandre Rougeot  

Alex - I would not have done it that way. If by "Billed" you mean created an AP Bill then you have the right result (if you have use a Sales Invoice then you have the reverse result), but a Manual Journal would have been a technically better solution. But if the right result comes out then don't rush to change it.
 

Peter McCarroll  

Hi Peter,

Thanks for your advise, I couldn't find the manual journal in Xero but after looking deeply into the software, I got into it and Xero advises only the accountant to create manual journals. So what's the best option for me as a user? record in a notebook but then I can't tract my usage.

If not, I'll just enter these journals myself.

Best,

Alex
 

Alexandre Rougeot  

If you are comfortable with what you are doing then go ahead with the MJs. If you want a walk through with me then go ahead and book a live support session.

Peter.
Xero Certified Advisor, Canadian CPA & New Zealand CA and Xero's award winning Most Valuable Professional. I give implementation advice to clients all over the globe. Get a Xero MVP on your team! Visit my blog for various Xero articles.

You can book a live remote Xero support session with me for a very reasonable price.
 

Peter McCarroll  

Merged: Giving Free Samples & How to account for them?

Hello

As part of my business I give free samples of my product to potential retailers etc. I am wondering how I should account for these in Xero.

As the samples are exactly the same as my retail products could I just add an inventory item 'FREE SAMPLES' and then add the products but give them a zero sales cost?

Would this then appear in reports as a cost (my manufacturing cost which I currently have in my inventory under Purchases>unit price)?

What do you guys do?

Thanks
 

Julian Campbell  

Julian just letting you know I've merged your question with this bigger discussion. I'm sure you'll find a solution to your free sample question in amongst all these comments - just have a look :)
 

Brittany H (Community Manager)  

Previously, I would manually journal any free samples we give to retailers etc. With Xero's new inventory capability, what has everyone been doing to account for samples given for free from inventory (or consumed)?

In my mind, assuming the cost of the inventory given away was $100, the accounting entries should be this:

Dr Promotional Expense 100
Cr Inventory 100

If necessary:
Dr Cash 0
Cr Sales 0

When raising the invoice in Xero, would it be correct to select the appropriate expense account at the product line level? (Generally, the pre-populated account is Sales).

Has anyone else come across this yet with the new inventory side of Xero? How have you been accounting for promotional giveaways/samples?
 

Kitty Fung  

How you affect Inventory and invoice when you give samples for your customers?
 

jose rodriguez  

You can include on an invoice at the correct quantity but change the amount to 0.00
 

Peter McCarroll  

Thanks, that's what we figured out and have been doing.
 

Kitty Fung  

Merged: Sample Stock and Tracked Inventory

Hi Guys,

I track my stock in inventory (tennis racquet to be precise).
Sometimes I will keep a racquet out of my stock purchased to use as a sample.
Just hoping someone can tell me how I should handle this in inventory so that it is removed from my total Qty in inventory please.
Not being an accountant or bookkeeper please dumb it down for me.


 

Mandy M  

There's a big discussion on this here Mandy! Merging so you can take a look at some of the solutions suggested there :)
 

Matt Oldfield (Community Manager)  

So from the discussion I can see that a manual journal entry needs to be done.
And that's fine I understand how to do that.
My question is then, with the new inventory and being able to track inventory, manual journal entries don't alter the inventory quantity available.
If I take stock out for samples how do I alter my inventory balance to reduce it by the sample stock amount?
Do I just go to the inventory item and do an adjustment?
Or instead of a manual journal entry wouldn't I have to invoice myself for the sample stock so that the inventory is then adjusted?
Hope I am making sense or am I missing something here?
 

Mandy M  

I have a question. I run a barber shop/hair saloon. I have a customer loyalty program. I give them a free hair cut after 10 visits. How can I enter and track this in xero?
 

Mira B  

Mira,

Normally you don't. Your salon software might have a process for tracking this, but it is non-financial and has no GST or income tax implications.

If you really want to see the value of this in your financial statements you would create a new Income account in the Chart of Accounts called something like "Free Cuts Given"). You would need to gross up your sales by the value of the free cuts (remember to make this BAS Excluded so that you are not reporting it or remitting GST) in your daily sales entry (or add it as a separate line) but code it to your regular sales account, then include the value of the free cuts again as a negative amount to the "Free Cuts Given" code.

Peter.
Xero Certified Advisor, Canadian CPA & New Zealand CA and Xero's award winning Most Valuable Professional. I give implementation advice to clients all over the globe. Get a Xero MVP on your team! Visit my blog for various Xero articles.

You can book a live remote Xero support session with me or self-paced Xero training for a very reasonable price.
 

Peter McCarroll  

Hi,

After all these discussions, I am feeling a little confused. I give away free promotional items and want to record it so that the inventory is updated. What is the best way to do this?

Thanks
 

Amy Nicola  

Amy - my response to Mira was in relation to a non-tracked item (e.g., hair cuts). If you have a tracked item then you definitely want to reduce the stock count. You should use the Inventory Adjustment feature to decrease the quantity and use another Cost of Sales accounts to ensure the cost is retained as a cost of sale.
 

Peter McCarroll  

Thanks very much Peter. So to clarify, it is best if I create a new account being a Promotions account which is a Direct cost, rather than as an Expense?

Thanks for your help
 

Amy Nicola  

yes, that is how I would do it.
 

Peter McCarroll  

Thanks Peter
 

Amy Nicola  

One more question.. a similar issue. If I have personally taken some of the stock, how do I account for this? Do I do an Inventory Adjustment and apply to Owners Funds Introduced or do I need to raise an invoice to myself (for GST purposes)?

Thanks
 

Amy Nicola  

Personal use of the inventory by owner would be a taxable supply, so raising an invoice is the easiest option.
 

Peter McCarroll  

This discussion is very helpful! I am trying to figure this out too. I like to keep track of the products giveaway either directly to prospects or at events

For prospecting, I raise a sales invoice which is discounted to 100%. This effectively reduce my inventory quantity? To keep track of the cost of these giveaway, I raise a manual journal
DR - Direct Cost Samples $$
CR - Inventory $$

For Events, I raise a manual journal
DR - InDirect Cost Samples $$
CR - Inventory $$
How do I reduce the Qty? I like to keep track of Qty associated to Events as well.

thanks
 

Diane vz  

Diane,

If you are using tracked inventory then a Manual Journal is the wrong way to do this. Let's take each of your scenarios:

Prospecting: If you raise a $0 Invoice then Xero will reduce the quantity and calculate COS on these items and journal this. The only catch is that you can't tell it to treat it as "Samples" - it will journal to your standard Cost of Sales account. You will have to manually adjust this using a MJ if you want it classified differently.

Events: a MJ is a bad idea here. Use the Inventory item, Options, New Adjustment feature. You would choose "Decrease quantity" and choose the appropriate expense account under "Adjustment Account" - this will reduce the quantity on hand AND transfer the cost of the items from the Inventory balance to the selected expense account.

You could use the Adjustment option for Prospecting no-value sales instead of a zero-value invoice to get the correct classification in the income statement, It just won't show up as a sale on the customer invoice.

Peter.
Xero Certified Advisor, Canadian CPA & New Zealand CA and Xero's award winning Most Valuable Professional. I give implementation advice to clients all over the globe. Get a Xero MVP on your team! Visit my blog for various Xero articles.

You can book a live remote Xero support session with me or self-paced Xero training for a very reasonable price.
 

Peter McCarroll  

Ok...After reading through all of this I'm seriously confused. As just a user, I'm trying to figure out how to do all of this simply through the standard user interface through Sales invoices, expenses, and Purchase orders. I'm trying to avoid doing any manual journal entries.

For my business it is a direct sales model for in-house merchandise sales. There are two forms of Promotional Items/Giveaways that I'm trying to account for while using Tracked Inventory.

I've created the following accounts in the Chart of Accounts:
6005 Advertising - Hostess Incentive
Incentives provided to in-home popup party hosts.

6010 Advertising - Giveaway
Use this account to document Discounts and giveaways.

Situation 1:
The hostess of the sale earns one (1) free item for every ten (10) items that are sold during a party. These free items span the gamut of inventory options available. My initial plan was to reflect each free item in a sales invoice with the account reflected as the 6005 (Advertising - Hostess Incentive) account. However, this keeps the Dollar Value of the Sales invoice as a positive instead of a zero value.

Does this really count as an advertising cost or should this be a cost of sale?

Situation 2:
As a part of marketing, I've given away $10 off, $5 off, and A free Item. Should these be implemented as:
a) simple % discount on individual line items of an invoice
b) Create an untracked inventory item "Discount" that tracks to the 6010 (Advertising - Giveaway) account with a Negative dollar value?

I'm at the very beginning of this process with my business, so I want to make sure this is all done correctly before I have a year's worth of Chaos to sort through...
 

Shawn Head  

I made an inventory adjustment and set the adjustment account to advertising expense. This resulted in a credit to the inventory asset account and a debit to the advertising expense account.
 

Patrick Hubbard II  

Hi all,

I'm an importer / distributor of different brands and use quite a fair amount of stock for tasting and promotional events.
I need to give a report to my suppliers and sales reps on a monthly basis on the stock used for tasting & promotion.

I considered using adjustments on Inventory but I don't see how I could get an overall report from it that will also explain the reasons of the tasting stock and which states / sales reps it came from.

So here is what I have been doing:
I set up a fake customer called "Promotion / Tasting stock" (I have also one called Broken stock for this obvious purpose).
Say I used two bottles for a tasting session. The COGS for these two bottles was $100.
I create an invoice and select the above customer. Then I add two lines on the invoice:
- 1st line: Inventory item, instead of the usual selling price I enter the total COGS: here $100 - Account used: Sales of the products. BAS excluded.
- 2nd line: No inventory item, I then enter in description the reason of the stock used. Enter the total COGS in negative -$100 - Account used Tasting stock (Marketing Expense).

The problem is that I just realised that it directly impacts my net sales in the P&L sowing that I sold more stock than I obviously did (inflated by the "sales" of the tasting stock).

Ideally, I would like to:
- Ensure it doesn't appear on my revenue on my P&L but as a marketing expense only.
- Extract it as a monthly report to my suppliers so I can see in unit and cost per product.
- Ensure it did reduce my inventory accordingly

Can you guys help?
 

Gregoire Bertaud  

@Gregoire

You are almost there with what you need to do. Couple of minor adjustments to your process:

1. When raising the "Sale", enter the quantity, but change the $$ value to nil. You are essentially selling the product for nil value. This will ensure the item is removed from the inventory count (which it should be), however will not post any revenue to your Profit and Loss Statement.

2. As part of raising the Sale, Xero will create the COGs entry as required. It will move the value from inventory on hand to your COGs expense account, correctly reducing the value of the inventory that you have left on hand.

3. At the end of the month, you can run an inventory item details report (Reports>New Reports). You will need to extract this to excel, and then sort by contact, but you will then be able to determine the COGs value of the goods used for sample/tasting.

4. Once you have this value, you can then raise a Journal to move the expense from COGs to Marketing expense

At this stage, Inventory Reporting is not as flexible and comprehensive is at could be (ie: easily reporting on sales to a particular client), however taking the existing reports to Excel will enable you to extract the data you require.

Regards
Cass
 

Cassandra Scott  

Thank you Cassandra,
I've been trying to understand your solution but I'm not sure it would work with my circumstances:
- As I said previously we have a large amount of bottles used for tasting. Creating an invoice and then a MJ will increase our time to do so. Any chance we could do it directly on the invoice and instead of using the sales account at nil, we would enter the COGS and impact the Marketing expense account. At the end of the quarter I would do a MJ to put the contact back to nil?
- When it comes to manually enter the cost I don't get how you can actually determine the COGS. Are you talking about the "Average cost" found in the Inventory tab?
- Also, as an importer, my real COGS defers from the COGS on Xero. Xero bases the COGs on the buying price only (which can obviously fluctuate).
My real COGS is: buying price + currency conversion rate + shipping to Australia + import taxes and duties + other shipping cost to my warehouse. This COGS is the real value of my products and this is this one that I have to report on my P&L for my suppliers and sales reps. One of my suppliers would reimburse me based on this COGS too.
As I have many imported products shipped together, I have created an Excel file that would automatically calculate the proportion of shipping cost has to be allocated to each product...

I'd be happy to organise a one o one session if that's better.

Let me know
Cheers
Gregoire
 

Gregoire Bertaud  

@Cassandra,

I was wondering if you saw my previous message?
Thank you in advance for your help.
Best,
Greg
 

Gregoire Bertaud  

Hi Greg

Sorry for not responding, I've been overseas.

To talk this through further, we would need to connect one on one. Please note, that this would be a fee for service arrangement.

If you would like to connect, please drop me an email at bookkeepers@laurus.com.au.

Regards
Cassandra
 

Cassandra Scott  

@cassandra,

Did you receive my email? I was hoping to solve this issue with you and if you could let me know your fees that would be great,
Thank you.
Grégoire
 

Gregoire Bertaud  

Hello Cassandra,

I haven't heard back from you. I guess you have been busy.
Is there anyone here that could help me?
 

Gregoire Bertaud  

Hey Peter, I"m doing the journal entry route. How do I credit "purchases". I don't see that in the form. Would that be "cost of goods sold?"
 

Priscilla Carreon  

Priscilla - it would depend on your chart of accounts. Cost of Goods Sold would be appropriate.
 

Peter McCarroll  

Hi! After reading all of this I am now even more confused! I think my query is very simple but I just can't work it out.
At present, for our Body Jewellery store, we do not track inventory or have a point of sale system, or raise invoices. I simply record the daily income as a receive money to the sales account, and all stock purchases I use a spend money to the COGS account. I have two questions I'm stuck with, when we give away stock for community raffles, I don't know how to account for this and what i need to increase or decrease as we don't use inventory?
We also gave away Gift vouchers for the same raffle, and I am unsure how to account for these also, and then when a customer uses them, I am unsure how to record that also for the same reasons, not tracking stock. Really stuck with this! I am comfortable creating manual journals however just unsure what accounts to use! Any advice would be very much appreciated!
 

Sharon Cracknell  

Sharon,

Probably a question to discuss with your accountant. But if you are not using tracked inventory then your most logical answer is the simplest cone. When you give stock away you do nothing (you have sold it for $0). If you give away gift vouchers you also do nothing (no real expense has happened until they are actually redeemed) - although you could record a liability for the voucher (talk to your accountant - I would probably not bother unless the amounts are higher). If you sell gift vouchers then my answer would be different.

Peter.
Xero-award winning Most Valuable Professional accountant serving NZ, Canada and US. Book a paid live remote Xero support session with me (no matter where you are) or use our self-paced Xero training.
 

Peter McCarroll  

Merged: Create nil value invoices & bills

I have suppliers sending samples and we forward these items to clients for approval. I cannot create a bill for a nil item value in the system. We want to reflect the purchase/ sale for records keeping purposes and a contact log on those specific sample orders. (These usually become new product line further down the track) Currently I can creating a debit and credit line so that the net value is zero.
 

Charmaine Towell  

Hi Peter, thanks so much for your help! I have a bit more to ask in that case, i don't quite understand what to do once gift vouchers that have been given away, are redeemed. Are you able to point me in the right direction on that as I am just confusing myself! If I did bring them in as liability, I'm unsure what the two sides of that transaction would be also as it is being given away and not sold. On the other hand, if we sell the vouchers, what would be the standard way to account for that at sale time and then at the time of redeeming? Any advice is much appreciated as i am confusing myself with this one the more i think about it!
 

Sharon Cracknell  

Hi there.. sorry if its been answered above but I read through a number of times and was still a bit confused.

We currently use Tracked Inventory and give away some items as 'comps'/promotional' and would like the inventory count to be reflected correctly.

Normally the client may have purchased a number of widgets so we would like prefer to include the 'freebie' on the invoice note if possible.

Assume that the unit cost is $5 and the normal sale price is $10

Based on above I have listed a number of options of which my preferred would probably be 3, though if an invoice without a manual journal could achieve the same ends, that would be better :)

---------------------------
Option 1. Creating a Bill (AP) for the customer and then

DR 'Promotions' Expense $5
CR Inventory $5
---------------------------
Option 2. Creating a New inventory adjustment decrementing inventory account and selecting 'Promotions' (expense account) - I assume this would mean we would only be able to track who received the items via the Notes

--------------------------
Option 3. Creating an Invoice (preferred) (so we can list the freebie along with items they've purchased). The related invoice line below

Widget Qty=1 Unit Price = $10 Discount = 100% Amount = 0 (put to Sales - Promotions) <= Revenue account

Then perform a manual journal

Dr 'Promotion' Expense 10
Cr Inventory 10

Wouldn't this throw out the Cost of Goods Sold?

---------------------------

And should the 'Promotions' Expense account we've used actually be setup a Direct Cost as opposed to an Expense?

Thanks in advance!
 

B Seeto  

Bev,

If you are using Tracked Inventory then you can't journal to the Inventory account. Option 2 is the best option. If you want it on the invoice then Option 3 works. The expense will therefore end up in your Cost of Sales account. If you want to reclassify then you will need a Manual Journal Dr. Promotions Expenses, Cr. COS Expense.
 

Peter McCarroll  

Thanks Peter. We've opted for Option 3 where an invoice is needed and will use Option 2 where its not. We've created a monthly report so we can process the Manual Journal entries as a batch.
 

B Seeto  

Hey guys, good thread, I run a business which distributes bicycles. My samples aren't given away but I get an extra discount on purchase and really use them as show case items on dealer demo days etc. So it's more of a marketing expense I guess, but there is an asset involved. Please help - no choccies on offer just a big thanks and a virtual hug!
 

Scott Davies