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Stock Management & Accounting

Stock management in BHIMA can be a standalone package or with automated accounting features. The automated accounting features are enabled in the Stock Settings module under the “Enable Automatic Stock Accounting” setting. It is on by default.

BHIMA behaves differently depending on the accounting standard being followed. For completeness, below we’ll present the two accounting strategies and discuss how BHIMA automates each. We’ll present an overview, then the purchasing procedure, then the consumption of medicines.

OHADA Stock Accounting

Overview

In OHADA accounting, purchases are modeled as an expense. When goods are delivered to the enterprise, the expense is offset with a credit to bring the sum of the expense back to zero. Finally, the consumption of medicines decreases the value of goods in stock and creates an expense for the institution.

These are the families of accounts used in the OHADA examples below:

Number	Label	Type
30	Stock	asset
40	Supplier	liability
57	Cash	asset
601	Purchases of Goods	expense
603	Variation of Goods	expense

The actual accounts may vary in practice with multiple sub accounts for taxes, shipping and handling, etc, but these accounts are representative for the examples that follow.

Purchasing Stock on Credit

In this scenario, the organisation purchases $105 of stock on credit from some supplier. There are three steps to complete:

Record an expense for the medicine purchased
Receive the goods in stock
Pay the supplier for the goods

The first step is to record the expense for the medicines purchased. This is done by debiting the expense account for purchase (601) and crediting the supplier’s account. The transaction is presented below:

Account Label	Number	Debit	Credit
Supplier	40		105
Purchases of Goods	601	105

The next two operations can happen in any order. Suppose that the warehouse receives the goods before the enterprise pays the supplier for them. In this case, the stock account (30) is debited for the value of the goods and the stock variation account (603) is credited for the value of the goods. The transaction is presented below:

Account Label	Number	Debit	Credit
Variation of Goods	603		105
Stock	30	105

The final operation can now be performed: the payment of the supplier for the goods purchased. This is a direct transaction between the supplier’s account (40) and the cash or bank account (57).

Account Label	Number	Debit	Credit
Cash	57		105
Supplier	40	105

Purchasing with Cash

In this scenario, the organisation purchases $105 of stock directly by paying cash to a shop. In this case, OHADA does not require going through a supplier account. Instead, the value of the medicine is directly expended from the cash account. The transaction looks like this:

Account Label	Number	Debit	Credit
Cash	57		105
Purchases of Goods	601	105

The only remaining step is to receive the goods in stock. This is identical to the transaction written when receiving goods purchased on credit.

Account Label	Number	Debit	Credit
Variation of Goods	603		105
Stock	30	105

After the Purchase

It’s important to note the balance of accounts in the OHADA chart of accounts after the purchase operation is completed. In the more complex case of purchasing on credit, the balance of each account will be as follows:

Number	Label	Debit	Credit	Balance
30	Stock	$105.00		$105.00
40	Supplier	$105.00	$105.00	$0.00
57	Cash	$0.00	$105.00	($105.00)
601	Purchases of Goods	$105.00		$105.00
603	Variation of Goods		$105.00	($105.00)
			Total	$0.00

Since the sum of balances is $0.00, the general ledger is balanced. The profit and loss statement (Compte d’exploitation) will show a net zero expense to the institution:

Number	Label	Debit	Credit	Balance
601	Purchases of Goods	$105.00		$105.00
603	Variation of Goods		$105.00	($105.00)
			Net	$0.00

Intuitively, this makes sense - the purchase of medicines converts cash assets into physical assets. Those assets could be converted back to cash without a loss to the insitution.

Consumption of Medicines

The consumption of medications under OHADA concerns only two accounts: the stock account (30) and the variation of goods account (603). To exit stock $25.00 of stock, the stock account is credited and the variation account is debited. The transaction is presented below.

Account Label	Number	Debit	Credit
Stock	30		25
Variation of Goods	603	25

Computing the Cost of Goods Sold (COGS)

Under OHADA accounting, the value of the cost of goods sold is not immediately available in the P&L statement like in IFRS accounting. Instead, the value is spread out between the 601 and 603 accounts. To recover the cost of goods sold, there can be no outstanding deliveries, and the 601 and 603 accounts must be summed to produce the cost of goods sold. The sum should always be a debitor balance and treated as the cost of goods sold.

IFRS Stock Accounting

In the IFRS accounting, purchasing medicines is never considered an expense, but the transfer of assets via an accounts payable. Generally, a supplier issues an invoice for goods and the enterprise pays the supplier by cash or by bank. The goods are entered into stock from the supplier’s account. So there are two transactions to consider: the invoicing for goods by the supplier and the payment for the goods by the enterprise. Finally, when stock is consumed/destroyed/removed, the value of the stock is written to a cost of goods sold (COGS) expense account. This makes computing the cost of goods sold very easy - simply read the value of the COGS account.

Consider the following accounts:

Number	Label	Type
30	Stock	asset
40	Supplier	liability
57	Cash	asset
62	Cost of Goods Sold	expense

Purchasing Medications

For medicines to be purchased, the payment happens either in advance of receipt of goods, after receiving the goods, or in multiple installments, depending on the contract. For simplicity, consider the payment of medications after full delivery.

First, medicines are delivered to the warehouse by a supplier. This is a direct transaction between the supplier’s account (40) and the stock account (30).

Account Label	Number	Debit	Credit
Stock	30	250
Supplier	40		250

This creates a creditor balance in the supplier account - a payable for the enterprise. In order to balance this account out, the enterpise will pay from their cash account (57) to the supplier (40) for the value of goods received.

Account Label	Number	Debit	Credit
Cash	57		250
Supplier	40	250

Consumption of Medications

For the consumption operation, a single transaction is recorded to remove the value of the assets from the stock account (30) and write an expense to the cost of goods sold account (62). Assuming $25.00 of medication was consummed:

Account Label	Number	Debit	Credit
Stock	30		$25
Cost of Goods Sold	62	$25

This completes the stock accounting process with IFRS accounting.