Numerous sellers are now opting for an inventory management solution to assist in managing the overall inventory processes within their business.
The inventory management system may be used in two ways:
- As a standalone system that is not connected to the accounting system and is managed independently. Many sellers opt to use A2X's Cost of Goods Sold feature alongside this method to achieve value based inventory accounting in their accounting system. To learn more about our Cost of Goods sold feature click HERE.
- As a system that assists with quantity based inventory management directly in the accounting system. This method is tailored for businesses that are using the in-built inventory features in Xero or QuickBooks Online.
Many of the inventory management systems focus primarily on inventory movement by way of capturing sales data on a per order or per unit basis. This approach is ideal for managing inventory on a quantity basis in the accounting system, but what happens to all of the other accounting information that make up the Amazon or Shopify deposits, such as fees, charges, shipping, tax amounts etc.?
This is where A2X comes in with a solution that will take care of it all for you!
Using A2X with the inventory management system
We will use Dear Inventory as an example to explain this integration.
Dear Inventory posts invoices/sales receipts over to Xero or QuickBooks Online covering only the sales/refunds value. They are marked as paid generally using a bank account or receivable account nominated in the settings of Dear Inventory.
These entries are missing the additional accounting details needed for reconciliation (fees, charges, shipping, etc.), and it is hard to reconcile multiple single entries with a single deposit in the accounting system.
The reconciliation process when using A2X is way easier and only a click away, as our entries contain all of the details and actually perfectly match the deposits in the bank account.
To use Dear Inventory in conjunction with A2X, we need to understand what exactly needs to be offset, i.e. in which areas are Dear Inventory and A2X overlapping.
We will use the following settlement as our example:
A2X will post an invoice entry over to Xero or a journal entry over to QuickBooks online. The total of the invoice/journal will perfectly match the deposit of $51.99 coming in to the bank account from Amazon.
Dear Inventory will post multiple entries that would make up the $95.67 sales amount, which means that the fees associated would be missing and it would be hard to try and tie these multiple entries back to the deposit of $51.99 sitting in your bank.
The overlap between the two systems
A2X allocates the principal sales amount line of $95.67 to the sales ledger account in the accounting system. Our complete entry covers all of the overall accounting and it is easily reconciled to the deposit.
Dear Inventory also covers the sales amount in their entries posted over to the accounting system, which means we need to offset the two together, and our recommendation is to use a clearing account for that.
Using a clearing account to achieve the offset
Dear posts a closed (paid) entry to the accounting system. One side of the entry covers the sales/cogs and inventory movement, and the other side of the entry is the account used to close/mark the invoice as paid. Often, this is a bank account but being that we have to offset this account within the A2X mapping, it will need to be a current asset clearing account instead. 'Undeposited funds' is a good example of the current asset clearing account that could be used, in our example below we have created a current asset clearing account called A2X/Dear Clearing.
Dear will post their entries to the accounting system and they will be marked as paid but using the current asset clearing account. The current asset clearing account is the account we will offset on the A2X side following steps outlined below:
1/ The $95.67 line in our example is already covered by the Dear entries, so we will map this line to the current asset clearing account we created called A2X/Dear Clearing.
2/ Dear Inventory will enter sales invoices into the accounting system and mark them as paid using the same A2X/Dear Clearing account.
3/ A2X will allocate the sales portion (refunds too, if necessary) of the complete settlement entry to the same A2X/Dear Clearing account, which will offset the balance allocated there by Dear Inventory (step 2).
At the same time, it will leave an open A2X entry in the accounting system, that will match exactly to the deposit when it hits the bank account.
If you have questions or need any assistance to ensure your inventory management system and A2X are working together smoothly, please contact us via our chat support anytime.
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