Inventory Profit Margin — Complete User Guide — Two Accounts Web

Comprehensive guide for the Inventory Profit Margin report — enabling it, creating the report, reading every column, drilling into the underlying transactions, and validating each figure against the General Ledger and accounting regulations

Table of Contents

1. What Is the Inventory Profit Margin Report?
2. Prerequisites — Enabling via the Customize Menu
3. Navigating to the Report
4. The Report List
5. Creating the Report — Field-by-Field
   • 5.1 From Date and To Date
   • 5.2 Description
6. Report Output Columns
7. How the Report Is Calculated
   • 7.1 Source of the Data
   • 7.2 Sales
   • 7.3 Cost of Sales
   • 7.4 Profit
   • 7.5 Margin
   • 7.6 Which Documents Are Counted
   • 7.7 Total Row and Drill-Down
8. Related Settings and Configuration
9. Sample Data and Report Output
   • 9.1 Sample Setup
   • 9.2 Creating the Report
   • 9.3 Report Output
   • 9.4 Drill-Down Transactions
   • 9.5 Calculation Verification
10. General Ledger Verification
11. Reporting and Accounting Impact
12. Accounting Regulation Validation
13. Common Issues and Best Practices

1. What Is the Inventory Profit Margin Report?

The Inventory Profit Margin report shows, for every inventory item (and inventory kit), how much it was sold for, what it cost to sell (the cost of goods sold), what profit it earned, and what margin (profit as a percentage of sales) it produced — all within a period you choose.

It answers the most important merchandising questions:

• Which items make the most money (not just revenue)?
• Which items are sold at a loss?
• Which items carry the best margin, and which have the weakest?

The report reads the actual General Ledger postings — the sales revenue lines and the cost-of-goods-sold lines — so every figure is auditable and reconciles to the Profit & Loss statement. A click on any item's Profit opens the underlying transactions, letting you trace exactly which sales documents produced the figure.

Like most reports here, it is a saved report: choose a period once, save it, and reopen it any time. The output is printable, emailable, and exportable.

2. Prerequisites — Enabling via the Customize Menu

The report appears under Reports only when the Inventory Items tab is enabled for the business. Inventory Items is not enabled by default.

How to Enable

1. Open the Customize Menu from the navigation bar.
2. Find the Inventory Items toggle and turn it on.
3. Click Update / Save to apply.

Once enabled, the report is available under Reports → Inventory Items → Inventory Profit Margin.

3. Navigating to the Report

From the main navigation bar:

1. Open Reports.
2. Go to the Inventory Items category.
3. Click Inventory Profit Margin.

This opens the report list — every saved Profit Margin report for the business appears here, sorted by its From Date.

4. The Report List

The list shows one row per saved report, with three columns:

Each row is clickable:

• Click the row to open the report output (the per-item sales / cost / profit table).
• Edit opens the report form to change the period or description.

A New Report button at the top creates a fresh report.

5. Creating the Report — Field-by-Field

Click New Report to open the report form. It contains three fields:

5.1 From Date and To Date

5.2 Description

6. Report Output Columns

The report opens with a subtitle:

For the period from {From Date} to {To Date}

The table reads one row per inventory item (or kit), listed alphabetically by the item's Code - Name. The columns are:

7. How the Report Is Calculated

7.1 Source of the Data

The report is built from the business's General Ledger, first run through the system's cost-of-goods-sold calculation so the cost figures are complete and correct. From the ledger it selects the lines that:

• belong to an inventory item or an inventory kit,
• are not inventory-on-hand postings (the stock-balance lines),
• are not tax transactions (VAT),
• have a non-zero amount, and
• come from a sales document dated within the period (see section 7.6).

The selected lines are then grouped by item (or kit).

7.2 Sales

Sales (per item) = sum of the item's sales-line GL amounts × −1

Sales lines are the revenue postings from the sales documents. Because revenue is credited (stored as a negative amount), the sign is reversed for display, giving a positive sales figure.

7.3 Cost of Sales

Cost of sales (per item) = sum of the item's cost-of-sales GL amounts × −1

Cost-of-sales lines are the COGS postings that carry a cost-of-goods-sold quantity — the amount of the item's inventory cost recognised as expense when the goods were sold (drawn from its cost layers). The sign is reversed for display, giving a positive cost figure.

7.4 Profit

Profit = Sales + Cost of sales

Since Cost of sales is presented as a positive amount in its own column but is a cost, the arithmetic is Sales − Cost of sales. This is the item's gross profit.

7.5 Margin

Margin = Profit ÷ (Sales ÷ 100)
       = Profit ÷ Sales × 100
       (rounded to 2 decimal places, half-away-from-zero;
        blank when Sales is zero or Profit is zero)

Margin is the gross margin percentage. In the summary it is rounded to 2 decimals (e.g. 44.12 means 44.12%).

7.6 Which Documents Are Counted

A line is included in the period when its source document falls inside the From–To range:

• Sales Invoice — by its issue date,
• Credit Note — by its issue date (returns reduce sales and COGS in the period they are issued),
• Receipt — by its receipt date.

This means the report is aligned to when the sale was recorded, which is the right basis for a profit-margin view.

7.7 Total Row and Drill-Down

• A Total row at the bottom sums Sales, Cost of sales, and Profit across all items. The Margin column is not totalled (a summed margin is meaningless).
• Clicking an item's Profit opens the drill-down transactions page — one row per underlying document, with the same Sales / Cost of sales / Profit columns plus Date, Transaction, Description, and an integer Margin. Negative values are highlighted. Each document row opens its own Edit/View screens.

8. Related Settings and Configuration

9. Sample Data and Report Output

9.1 Sample Setup

Business settings

Transactions

Inventory items

Sales prices (assumed to complete the walkthrough)

Assuming selling prices of 20 per Widget-X, 30 per Gadget-Y, and 45 per Component-Z:

9.2 Creating the Report

From Reports → Inventory Items → Inventory Profit Margin, click New Report and enter:

9.3 Report Output

For the period from {From Date} to {To Date}

9.4 Drill-Down Transactions

Clicking Widget-X's Profit (1,500.00) opens the drill-down page for that item — one row per underlying document:

Widget-X — Profit

9.5 Calculation Verification

Widget-X (FIFO/Perpetual):

Units sold      = 150 (T7) + 30 (T11) − 10 (T17 return)     = 170   ✓
Sales           = 170 × 20                                   = 3,400
Cost of sales   = 1,600 (T7) + 360 (T11) + 60 (T14) − 120 (T17) = 1,900  ✓
Profit          = 3,400 − 1,900                              = 1,500  ✓
Margin          = 1,500 ÷ (3,400 ÷ 100)                      = 44.12% ✓

Gadget-Y (Moving Average/Perpetual):

Units sold      = 50 (T8) + 60 (T12)                          = 110   ✓
Sales           = 110 × 30                                    = 3,300
Cost of sales   = 1,050 (T8) + 1,260 (T12)                    = 2,310  ✓
Profit          = 3,300 − 2,310                               = 990   ✓
Margin          = 990 ÷ (3,300 ÷ 100)                         = 30.00% ✓

Component-Z (LIFO/Periodic):

Units sold      = 120 (T9) + 30 (T16)                         = 150   ✓
Sales           = 150 × 45                                    = 6,750
Cost of sales   = 50×34 + 100×32 (period-end LIFO, T18)       = 4,900  ✓
Profit          = 6,750 − 4,900                               = 1,850  ✓
Margin          = 1,850 ÷ (6,750 ÷ 100)                       = 27.41% ✓

Total row:

Sales          = 6,750 + 3,300 + 3,400 = 13,450    ✓
Cost of sales  = 4,900 + 2,310 + 1,900 = 9,110     ✓
Profit         = 1,850 + 990 + 1,500    = 4,340     ✓

10. General Ledger Verification

Every figure in the report is a sum of General Ledger postings. For the Widget-X sales, the system posts revenue and COGS as follows (amounts per the walkthrough):

  Dr  Bank / Cash (or Accounts Receivable)        3,400
    Cr  Sales Revenue (Widget-X)                            3,400   ← sales line
  Dr  Cost of Sales (Widget-X)                    1,900
    Cr  InventoryOnHand (Widget-X)                         1,900   ← COGS lines
                                      ──────────   ──────────
  Total Debits: 5,300   Total Credits: 5,300   ✓ Balanced

How each report column maps to the GL:

Cross-check with the walkthrough's Trial Balance / P&L for the period:

Sales Revenue                                13,450  ✓  (matches report Sales total)
Cost of Sales (Widget 1,900 + Gadget 2,310 + Component 4,900) = 9,110  ✓
Gross Profit                                 4,340  ✓  (matches report Profit total)

11. Reporting and Accounting Impact

• Profit & Loss: The report's Sales and Cost of sales totals reconcile to the P&L revenue and COGS lines. It is effectively the gross-profit section of the P&L, disaggregated item by item.
• Balance Sheet: The COGS postings reduce InventoryOnHand; the report shows the cost of the stock sold, which ties to the movement in the inventory balance for the period.
• Pricing decisions: Margin per item is the input for pricing, discounting, and product-line decisions — which items to push, which to reprize, and which are dragging overall margin.
• Cost control: The margin reflects the full unit cost carried in the item's cost layers (purchase price and attributable costs). Rising purchase costs or freight directly compress margin, which this report makes visible.
• Loss detection: Negative-profit items are surfaced immediately, enabling write-down and discontinuation decisions.

12. Accounting Regulation Validation

13. Common Issues and Best Practices

13.1 The Report Does Not Appear

Cause: The Inventory Items tab is not enabled, or the user lacks report permission.

Solution: Enable Inventory Items in the Customize Menu, or ask the administrator to grant report access.

13.2 An Item With Sales Is Missing From the Report

Cause: The item's sales document date is outside the From–To range, or the sale was recorded through a document type the report does not read.

Solution: Widen the date range. Remember the report uses the source document's date (sales invoice issue date, credit note issue date, or receipt date).

13.3 The Report Body Is Empty

Cause: No inventory items were sold in the period, or no sales documents exist.

Solution: Confirm sales invoices/receipts were issued for inventory items within the period.

13.4 Profit / Margin Looks Wrong

Cause: The COGS figure depends on the inventory valuation method and on whether the system's COGS calculation has run. If purchases were never recorded as inventory layers (or the layers carry zero cost), no meaningful COGS exists.

Solution: Confirm purchases are recorded as inventory (creating cost layers with their unit costs) and that the COGS calculation reflects your valuation method.

13.5 Why Is the Margin Blank in the Total Row?

Explanation: A summed percentage is meaningless — the Total row therefore sums only Sales, Cost of sales, and Profit. Read each item's margin from its own row.

13.6 Why Is the Drill-Down Margin an Integer?

Explanation: The summary page shows margin rounded to 2 decimals (e.g. 44.12%); the drill-down page shows it as a whole number (e.g. 44). The underlying ratio is the same.

Best Practices

• Run one report per accounting period (e.g. monthly or quarterly) with a clear Description — the saved list makes margin trend analysis easy.
• Reconcile the Sales and Cost of sales totals to the P&L for the same period.
• Use the drill-down to audit individual documents behind any item's profit before making decisions.
• Watch for negative-profit items — they are candidates for repricing, write-down review, or discontinuation.
• Remember the margin basis — it is gross margin on the cost carried in the item's inventory layers, before operating expenses.

End of Inventory Profit Margin Guide