Perpetual Inventory and COGS

If you keep stock, Udyot can keep your inventory and your accounts perfectly in step using perpetual inventory. Every time you buy, sell, or move stock, the matching accounting entry is posted automatically — so your Balance Sheet’s Stock-in-Hand always equals your Stock Summary, and your profit is calculated correctly using the cost of what you actually sold.

What “perpetual inventory” means

In a perpetual system, stock is valued continuously rather than only at year-end. When you turn on Integrate accounts with inventory (see Company Settings), Udyot posts the inventory side of every stock transaction for you. There are no manual stock journals at month-end.

How a purchase and a sale post

• Purchase: Buying stock increases an asset (Stock-in-Hand). It is not an expense yet. Your purchase shows up as a rise in inventory value, plus VAT Input and the supplier payable.
• Sale: Selling records the revenue (Sales + VAT Output + the customer receivable) and the cost — Udyot moves the item out of Stock-in-Hand into Cost of Goods Sold (COGS) at its weighted-average cost.
• Payment to a supplier: Settles the payable. It does not touch profit.

Why your expense appears at sale time, not at purchase

This is the question we get most often. Under perpetual inventory, buying stock simply converts cash (or a payable) into an asset — so it does not reduce your profit. The expense is the cost of goods sold, and it is recognised in the same period as the sale it earned. Example: you sell goods for NPR 11,300 (NPR 10,000 + 13% VAT) that cost you NPR 6,000. Your dashboard and Profit & Loss show income 10,000 and expense (COGS) 6,000 — a gross profit of 4,000 — at the moment of sale. The earlier purchase showed up only as a higher Stock Value, not as an expense. This is the accrual “matching principle” and it gives you a true gross margin per period.

Manufacturing too

Production works the same way — raw materials leave Stock-in-Hand and finished goods enter it at full cost, with no profit impact until the finished goods are sold. See Manufacturing Journal.

Tips & common questions

What if I don’t want perpetual inventory? You can leave it off and account for purchases as a direct expense (periodic method). Perpetual is recommended for accurate, real-time gross margins.

Which valuation cost is used? Weighted average — see Stock Valuation Methods.