The difference between managed and unmanaged materials

A material item may be Managed or Unmanaged.

Managed materials require changes of unit cost and stock level may only be made by Sales, Credits, Purchase Order receipt and Stock Adjustment transaction. This enables a full transaction history (audit trail) of all stock movements to be recorded and an accurate unit cost figure to be calculated (using the perpetual average system as described below). Individual stock transactions appear in a connected Xero account. In Xero, every stock transaction appears as a zero total bill, debiting (crediting) stock on Hand and Crediting (debiting) the nominated stock adjustment account. Thus there is a full audit trail from Tidy through to the accounting system.

Conversely, unmanaged materials can have their unit cost and stock level simply overtyped, which makes them easier to work with, but they do not keep a history of adjustments. Unmanaged materials, being more loosely controlled, are more applicable to a periodic inventory system where the stock on hand account ledger is manually updated from time to time - perhaps weekly, monthly, or even less frequently.

Inventory Accounting for Managed Materials

Managed materials use a perpetual inventory system. The unit cost of managed materials is calculated using the perpetual average inventory accounting method, which means that the unit cost reflects the cost of buying the current stock (including freight and other landing costs), even if it was purchased over different dates at different prices.

Below is an example of how this might work out in practice - note the costs will typically include landing expenses such as freight (depending on the freight option selected in company settings):

Xero Accounts and Journaling for Managed Materials

For Managed materials, Xero accounts should be setup as described below. Once setup, these accounts need to be selected in TidyStock under GLOBAL SETTINGS > ACCOUNTING.

Stock on Hand

This should be set up as a Current Asset account in Xero, for example:

The Xero Inventory account cannot be used - it is locked and for Xero internal use only

Cost of Goods Sold

This Should be a Direct Costs account in Xero, for example:

Stock Adjustments

Adjustment include breakages, stocktaking adjustments, etc. This should be a Direct Costs account in Xero, for example:

It may be a separate stock adjustment account, or the COGS account, depending on business and accounting preferences

Purchasing Stock

Managed materials

When stock on a purchase order is received, the value is debited to the nominated Stock on Hand account in Xero.

Unmanaged materials

Unmanaged materials, on the other hand, are credited to the Cost of Goods Sold account in Xero.

Sales

Managed materials

When a Sale is completed, the lines on the invoice in Xero are coded to the nominated default Sales account (e.g. 200 Sales) or a specific Sales account nominated in the items Material Category in TidyStock. At the same time, TidyStock creates a special zero-total bill in Xero to credit the nominated Stock on Hand account and debit the Cost of Goods Sold account.

"Unmanaged" materials

As per managed materials, but no bill is created in Xero.

Adjustments

Managed materials

Adjustments (e.g. stock take, breakages etc.) will also create a zero-value bill in Xero to debit / credit Stock on Hand and credit/debit Adjustment accounts. The effect on these accounts will depend on the nature of the adjustment, and whether it has a positive or negative effect on stock levels.

"Unmanaged" materials

Not applicable. Adjustments are made simply by modifying the stock level, but the modification is not explicitly tracked or accounted for.