How to set up cost for internal goods movements

Cost of goods disappears during internal transfers: which calculation method to choose

In Torgsoft, the cost of goods is most often "lost" during internal transfers due to an incorrectly selected calculation method. This happens when the «Last purchase price» method is set in the settings. With this method, the cost of goods is always fixed as the last purchase price at a specific accounting center (store). If the product arrived at the store not directly from the supplier through a receipt invoice, but through an internal transfer from another warehouse, the program does not find the purchase price for this specific sales point. As a result, the cost of goods is not entered in warehouse sales documents (it becomes zero), and the profit is displayed incorrectly, equal to the entire sales amount.

A similar problem also occurs when using the «By supply batches by accounting centers» method, which works correctly only if there are no internal product transfers between accounting centers at all.

Which method to use for a network with several warehouses or stores

To avoid losing the cost of goods and to get the most accurate profit calculation (COGS), technical support strongly recommends that retail networks use the «By supply batches with internal transfers taken into account» method.

How the «By supply batches with internal transfers taken into account» method works

1. Internal transfers as "carriers" of cost. The main feature of the method is that internal transfer invoices act as cost carriers. When a product is transferred from the central warehouse to a peripheral store, the cost "travels" together with the product and directly forms the cost of balances at the receiving warehouse and in its expense documents.

2. Local and global FIFO principle (First In, First Out). The rule applies to all documents: the product that arrived first at a specific accounting center is the first to be linked to the expense document (written off). The only exception is products with strict warranty accounting by serial numbers, where the link is formed strictly by a specific serial number, not by the FIFO rule.

3. Calculation mechanics by example:

•    At "Store 1", the product was received in two supplies: on the 1st day, 10 pcs. at 30 UAH, and on the 2nd day, 20 pcs. at 40 UAH. The average cost of the balance (30 pcs.) at this store is 36.66 UAH per piece.

•    Next, an internal transfer of 5 pcs. to "Store 2" is made.

•    According to the FIFO principle, the program takes these 5 pcs. from the first batch (at 30 UAH), meaning the cost of the product received at "Store 2" will be exactly 30 UAH per unit.

•    At "Store 1", 25 pcs. remain (5 pcs. at 30 UAH and 20 pcs. at 40 UAH), and their new average cost is recalculated to 38 UAH per piece.

Why this method provides correct cost and profit

• Accuracy for each sales point. The method allows each accounting center to have its own economically justified cost of balances for the same product, based on the actual batches received there.

• Transparent profit. Thanks to the automatic transfer of purchase cost through internal transfer chains, when a product is sold in any store of the network, the program knows its exact purchase cost. This prevents "zero" cost of goods and guarantees the correct calculation of the net financial result (COGS).

• Solving the "returns issue". Unlike the standard "By supply batches" calculation, this algorithm eliminates the system problem of incorrect calculation that occurred if a product was returned immediately after sale, before the nightly cost recalculation was launched.

Thus, switching to the «By supply batches with internal transfers taken into account» method is a critical step for any business with several warehouses or stores, as it guarantees that product movement within the network does not distort financial analytics.