A product line is a classification for items with similar characteristics. Go to File > Product > Product Line to view a list of existing lines.
Organizations selling goods and services with different properties may benefit from separating inventory, sales and costs for analytical purposes. For example, a company with Heating and Cooling segments may want to report separate performance without establishing another branch.
Product Lines are also useful for controlling the posting of non-merchandise services to prevent them from systematically being treated as inventory.
The Inform system uses various internal settings to point business processes to specific G/L accounts. Product Line G/L specifications work with existing Branch and Warehouse settings to control G/L posting.
Product line general ledger fields
- Allow G/L posting from A/R and A/P should be checked off if any of the G/L accounts specified are also used for other purposes and from other sources.
- Inventory G/L specifies the account used to record inventory transactions.
- At the time of purchase, the account is debited at its current cost.
- At the time of sale, the account is credited at its current cost.
- At the time of physical count, adjustment, transfer or status change, the account changes at its current cost.
- Cost of Goods G/L specifies the account used to record the cost of merchandise at the time of sale. This amount exactly offsets the inventory value relieved at time of sale.
- Direct Ship Cost of Goods G/L specifies the account used to record the cost of merchandise at the time of a direct ship sale.
- Sales G/L specifies the account used to record transaction revenue at the time of customer invoicing for positive sales.
- Sales Returns G/L specifies the account used to record contra revenue at the time of customer invoicing for negative sales.
- Inventory Change G/L specifies the account to be used at the time of physical count, adjustment, transfer or status change.
In the above example, a consumable labor product line will apply the following posting rules to any transaction involving a “member item.” The result is that the cost of this unit is picked up by purchasing it from the vendor. If it is an intangible that is not purchased by the vendor, then the G/L posting resulting from the sale will have no cost effect and only a revenue effect.
- Purchasing a unit of labor on a PO, entering an A/P invoice and linking the stock receipt:
Debit Cost of Sales Service / Credit Accounts Payable
- Adjusting a unit of labor up or down affects the same account both ways resulting in a net zero effect:
Debit Cost of Sales Service / Credit Cost of Sales Service
- Selling a unit of labor affects the same account on both sides resulting in a net zero effect.
Debit Cost of Sales – Service / Credit Cost of Sales Service
Implement product line general ledger
The settings described thus far apply to the Product Line. In order for individual products to follow the alternate pathway, they must be assigned to the Product Line in File > Product > Master > Setup. Product Line G/L can be re-indexed retroactively to the beginning of a fiscal year in the event that transactions have posted before the settings are specified. Before considering reindexing the G/L, see General ledger re-indexing.
Alternative workflows
The Inventory and Cost of Goods fields can be used to avoid intangible item costs from becoming mixed in with physical inventory. Suppose there is a Labor item with a cost of $50 per hour. The user wants to keep the cost attached to the item for the calculation of Gross Profit.
Without the use of product line specifications, every unit of Labor sold would have increased cost of goods sold and decreased inventory value accordingly. The actual cost of Labor would have also been recorded as part of a payroll journal entry or third party vendor invoice.
Setting the Inventory and Cost of Goods fields to the same account ensures that the same account is debited and credited as part of a sales transaction, thereby canceling out the cost.
Reindex changes
If you make a Product Line change in the middle of the year, a G/L Re-index should be performed to capture any transactions that may have already occurred. Before considering reindexing the G/L, see General ledger re-indexing.