If you manage inventory or stock in your organisation and plan to do a 3-Way Forecast, then you'll need to budget for this inventory.

In this help note we'll look at how to budget for inventory using the Periodic Inventory accounting method, as well as identify the required Cashflow Settings.

There are two generally accepted principals used in accounting for inventory - Perpetual and Periodic.

For help with identifying what accounting method you use please refer to the Inventory Financial Settings help article. If you use the Perpetual accounting method please refer to the help article Budget for Inventory (Perpetual method).

The accounts involved in Periodic Inventory and the cashflow settings required are as follows.

Note: Users generally use either either Opening/Closing Inventory accounts or an Inventory Movement account, not both.

When accounting for inventory using the Periodic method you'll periodically do a journal that adjusts cost of sales according to your Inventory movements. This journal and your budgets related to this are a book entry only and therefore they have no cashflow effect and thus the cashflow type of None.

When you nominate the above accounts in the Inventory screen the Cashflow Type is set automatically. In addition the Inventory (Asset) accounts budget will be automatically calculated (see budgeting below).

With the periodic inventory method, Purchases is the only account that has a cashflow effect. Creditor Days is therefore the default cashflow setting, but you may also choose a custom Profile.

Note: For a full explanation on Cashflow forecasting including cashflow settings please refer to the Step by Step Guide to Cashflow Forecasting help article.

We recommend following these 3 steps.

Let's look at the full process in detail.

You can create your sales projections however you like, but here are a few suggestions.

As per Budget for Sales, you could use the Budget Factory with prior year actuals, enter some budgets manually or use an Excel model to import.

With Periodic Inventory Cost of Sales is calculated as:
​Cost of Sales = Opening Inventory + Purchases – Closing Inventory

There are numerous ways to record this in your accounting, but most commonly we see Opening and Closing Inventory accounts or a single account that represents Inventory Movement in Cost of Sales. These Cost of Sales accounts then balance against the actual inventory movement (included in the Inventory on Hand Asset account) on the Balance Sheet.

As discussed earlier, the Opening and Closing Inventory Accounts should have a cashflow type of None. Budgeting on accounts that have a cashflow type of None in Calxa requires the budgeted values are balanced, however If you use the Inventory settings with the Periodic method, Calxa will automatically create the balancing budget on the Balance Sheet (Asset) accounts. Therefore all you need to do is worry about the Cost of Sales accounts.

If you wish to handle this manually - perhaps you have multiple stock accounts and require a more accurate split of the balancing budgets, then you'll need to ensure the budgeted movements on the balance sheet match what you budgeted in Cost of Sales. Please refer to the help note - Balancing your Budget with the Discrepancy Analysis Report for more details.