Write-off analytics: why loss amounts in different reports don't match

Write-off analytics: why loss amounts differ across reports and how inventory counts and production affect them

In the course of daily trading operations, business owners inevitably encounter product losses caused by stock mix-ups, damage, expiration, or the use of products for the company’s own needs. 

To record such events, Torgsoft provides a mode for creating write-off documents, while the results of these operations are displayed in financial analytics to ensure the correct calculation of profitability and profit.  

These discrepancies are not caused by a mathematical error in the system. They result from the precise logic of management accounting, which flexibly separates direct financial losses from system-generated technical movements of products.

Differences in the logic used to generate financial reports

The main reason why write-off amounts differ between analytical forms lies in the purpose of the reports themselves.

The «Summary Report for the Period» (or «Sales Profitability for the Period») collects and totals raw data from all available warehouse documents created during the selected period. If a write-off document exists in the database, its cost price will be included in this report.

By contrast, the «Analysis - Period» form is intended to calculate the company’s net product profit accurately. To prevent profit from being artificially understated, the program must distinguish actual losses from internal product movement processes.

For this reason, the following types of system-generated write-offs are not included in the «Write-offs» column of the «Analysis - Period» form:

• Write-offs during assembly and disassembly.

• Write-offs of materials for production and production waste.

• Write-offs when unpacking products from a seasonal storage box.

• Write-offs of defective production output.

• Inventory count write-offs.

None of these operations directly affects net profit at the moment of write-off, because they do not represent an irreversible financial loss in its pure form, such as a product becoming damaged on a shelf, or because they are included under separate calculation items.

What, then, is included in the «Write-offs» amount in the «Analysis - Period» form? It includes all write-offs manually created by the user for a counterparty created by the user, as well as write-offs assigned to the following system counterparties: «Write-off» (standard), «Write-off of a Product from Production», and «Repair Write-off». All other system counterparties do not affect the write-off amount calculated in this report.

The impact of inventory counts: where do shortages go?

Business owners most often look for the amounts of products written off during a stocktake in the general write-off column but cannot find them there.

In «Period Analysis», write-offs resulting from an inventory count are separated into their own calculation item and included in the «Inventory Shortage» amount. The program takes into account that a stock mix-up may occur during a stocktake — a situation in which the shortage of one product model is partially or fully offset by a surplus of another. Therefore, the shortage amount is calculated using the following formula:

Total write-offs minus Total stock mix-up amount.

Only after this offset is applied does the final shortage amount reduce the company’s total profit.

Users may notice that an automatically created inventory write-off is sometimes recognised by the program as a standard manual write-off and is incorrectly added to total write-offs in «Period Analysis». This happens when the user or the system interrupts the recalculation of product cost prices in disposal acts while the inventory statement is being closed.

To resolve this issue, Torgsoft provides a special status attribute for inventory statements: «Amounts must be recalculated». The user only needs to click the «Recalculate amounts» button in the statement form. After that, the inventory write-off will no longer be included in the total write-offs of «Period Analysis», and profit will be calculated correctly.

The impact of production: materials and defective products

Business owners who use the production or assembly option often ask:

The answer lies in the nature of the economic process. Writing off materials for production does not reduce the store’s profit because the product simply changes from one physical state, raw material, to another, finished product. Its cost price is retained and will affect the company’s profit only when the finished product is sold. However, if a finished product must be written off as a production defect («Write-off of a Product from Production»), this is already a direct loss. Because the product is damaged and will not be transferred to the warehouse for further sale, the materials used to produce it become a company loss and directly reduce profit in the analytics.

Problems with system counterparties and duplicates

Another common question from users is:

If you manually totalled the cost price of all write-offs for the month, but the amount in the analytics differs, for example, by several units or hundreds, the reason is most often related to the language settings of system counterparties. When the program is used in several languages or after the interface is switched from Russian to Ukrainian or vice versa, a duplicate system write-off counterparty may have been created in the system.

In this case, automatic write-offs may begin to be assigned to a counterparty with a different name, for example, not to "Списание" but to "СПИСАННЯ ІНВЕНТАРИЗАЦІЇ". This disrupts the algorithm that recognises them as system-generated and adds them to the category of manual losses in Period Analysis. To resolve the problem, simply merge the duplicate system counterparties created in different languages into a single counterparty using the program directories. The calculation will then be correct again.