There are two main methods used for inventory accounting: the perpetual inventory method and the periodic inventory method.

Under the periodic method, only inventory purchases are recorded (reflected in the inventory account on the balance sheet), and detailed tracking of inventory outflows is not maintained. At the end of the accounting period, a physical inventory count is performed to determine the ending balance. The cost of goods sold (COGS) is then calculated using the formula: Opening inventory + Purchases – Ending inventory.
This calculated amount is used to record the expense entry in accounting.The main advantage of the periodic method is its simplicity; however, it does not provide real-time information about stock levels. This means that if you are using the periodic inventory method in SimplBooks, it is not necessary to enter items into the system.

Perpetual inventory method. All inventory inflows and outflows are recorded in the accounting system.
When inventory is received (purchased), inventory items must be selected on purchase invoices, and the same applies when posting outflows (sales invoices or inventory write‑offs). This provides a real‑time, detailed view of inventory movements and current balances, both in quantities and in monetary values.

Inventory cost calculations. In SimplBooks, inventory cost calculations are primarily based on the FIFO (first-in, first-out) method. Alternatively, the system can be configured to use the weighted average cost (WAC) method in the settings.

Where should I start then?

1. Review the default settings related to the warehouse: Settings -> Environment settings -> Warehouse settings.
2. If necessary, you can enable negative stock, but its use requires careful consideration. Negative stock can complicate inventory tracking and demands extra attention to ensure that all purchase invoices are entered into accounting on time.
3. Go to Warehouse > Warehouses to view and add warehouse locations. Determine how many warehouses your business needs before setting them up.
4. You can add items either manually or via import. Items can be of two types: service or inventory. Make sure to select the appropriate type.
5. When continuing operations with inventory from a previous period, you must enter an initial stock balance. This is based on the closing inventory of the prior period and should not be modified later. For companies with multiple warehouses, an initial stock balance must be entered for each warehouse individually.
6. Once you’ve entered the initial stock balance, go to Warehouse > Inventory and verify the data by selecting the initial stock balance date.
7. Goods are typically entered into inventory using purchase invoices. In certain cases, however, goods may also be received through an inventory income document (Warehouse -> Documents -> Inventory income). One such case is when a purchase invoice was initially recorded as an expense, but at a later point, the decision is made to bring the goods into inventory. An inventory income entry cannot have a zero value — the cost price must be specified. Based on this cost, a financial transaction is generated that reduces the balance of the expense account (in the profit and loss statement) and increases the balance of the inventory account (in the balance sheet).
8. When entering a sales invoice for inventory items, it is required to use items on the invoice. See section 9 of the guide Adding sales invoices (entry examples) for an example.
9. If you need to write off goods (e.g. due to defects or internal use), use the Add write-off option under Warehouse -> Documents.
10. You should perform a stocktaking at least once a year. Enter it under Warehouse -> Stocktaking.

If you have any additional questions, please write to us at support@simplbooks.ee