Inventory Transfers

October 06, 2026 85 views admin

Inventory Transfers — Complete User Guide — Two Accounts Web

A complete guide to moving stock between locations, recording the costs of moving it, handling tax on those costs, and understanding how transfers affect inventory value

What Are Inventory Transfers?
Where to Find It
Field-by-Field Guide
Transfer Costs — Direct vs Indirect
Tax on Transfer Costs
Payment — Paid vs Owed
Journal Entries
Inventory Valuation Impact
Insufficient Quantity
Viewing Transfers and Costs
Accounting Regulations
Limitations and Notes

1. What Are Inventory Transfers?

An Inventory Transfer moves stock from one inventory location to another within the same business — for example, from a central warehouse to a retail shop, or between two godowns. Ownership does not change, and no sale or purchase takes place.

A transfer does two things:

Moves quantity — reduces stock at the source location and increases it at the destination by the same amount.
Optionally records the cost of moving it — freight, handling, insurance, duties, and similar costs can be attached to the transfer so they become part of the inventory value at the destination.

Moving stock between locations does not change its total value. Only the attached transfer costs change the value — the movement itself is quantity-only.

2. Where to Find It

Open the Inventory Transfers tab from the main menu enabling from Customize Menu. The list shows each transfer's date, reference number, source location, destination location, and a total of the items moved.

Click New Inventory Transfer button to create a new transfer, View button to view it, or use the Edit button to change it. The Journal Entry link on the document shows every debit and credit the transfer posted, including any cost and tax legs.

3. Field-by-Field Guide

3.1 Header Fields

Field	Type	Description
Date	Date	The date the stock moves. Quantity checks and cost calculations use the stock position as of this date.
Reference	Text (optional)	A reference number for the transfer. Can be generated automatically.
From	Inventory Location	The location stock leaves. Must hold enough of each item, or the transfer cannot be saved (see section 9).
To	Inventory Location	The location stock arrives at. Costs are capitalised into inventory at this location.
Description	Text (optional)	A free-text note about the transfer, shown on the document.

3.2 Line Fields

Each line moves one inventory item. A transfer may have any number of lines, including several lines for the same item.

Field	Type	Description
Item	Inventory Item	The item being moved. Choose from your inventory items.
Description	Text	Defaults to the item's name. Can be overwritten per line.
Qty	Number	How many units move from the source to the destination. Must be greater than zero. The same quantity leaves one location and arrives at the other.

If the same item appears on more than one line, each line is checked on its own — but the combined quantity must also be available. Entering two lines of 60 for an item holding 100 will be rejected.

3.3 Transfer Cost Rows

Tick Show transfer costs to reveal the cost section. Each row records one cost of moving the stock — for example one row for freight and another for handling.

Field	Type	Description
Cost Type	Direct / Indirect	Whether the cost becomes part of inventory value (Direct) or is expensed immediately (Indirect). See section 4.
Cost Amount	Number	The cost before tax. Must be greater than zero to take effect. Entered in the business base currency.
Allocation	Profit & Loss Account	Where the cost is released when the goods are eventually sold (Direct rows), or where it is expensed immediately (Indirect rows). Optional — a default expense account is used when left blank.
Tax Code	Tax Code	The tax code applying to this cost row. Each component of the code is processed separately — see section 5.
Division	Division	Associates the cost with a division for divisional reporting. Optional.
Project	Project	Associates the cost with a project for project cost reporting. Optional.

A single transfer may mix Direct and Indirect rows. For example, freight that belongs in inventory value (Direct) alongside warehouse labour for the move that should be expensed (Indirect). Each row is processed according to its own type.

3.4 Payment Fields

These appear alongside the cost section when Show transfer costs is ticked.

Field	Type	Description
Paid From	Bank or Cash Account	The bank or cash account the costs were paid from. Set this when the costs have actually been paid. Takes precedence — if both this and Paid To are set, the bank is used.
Paid To	Supplier	The supplier or carrier the costs are owed to. Set this when a bill has been received but not yet paid. A separate payment document settles it later.

Money left the bank → set Paid From. Bill received but not yet paid → set Paid To. Do not set both unless the bank payment is the one that matters — the bank always wins. Leave both blank only when the liability is genuinely unresolved; the amount parks in the suspense account until corrected.

Who the Supplier Is

A transfer moves your own stock between your own locations, so there is no goods supplier on this document — nothing is being purchased and no vendor invoice is being settled. An Inventory Transfer has no Supplier field for that reason.

When Paid To asks for a Supplier, it means the party who carried the move and is waiting to be paid — the carrier, transporter, courier etc. Record that party once in the system in your customer and supplier list, then choose it here. Common examples:

Party	Typical charge
Third-party carrier, courier	Freight, pickup and delivery
Warehouse or loading-bay operator	Handling, pallet racking at the destination
Internal transport team (recorded as a supplier)	Internal recharge for vehicle and labour

Do not choose your goods supplier here. No purchase is taking place, so the goods supplier is not involved in this document. Choose only the party that carried out, or supplied a service for, this movement.

4. Transfer Costs — Direct vs Indirect

4.1 Direct Costs

A Direct cost is a cost of bringing the relocated units to their present location and condition. It becomes part of the inventory value at the destination location:

Freight and shipping on the specific movement
Loading, unloading and handling at either end
Packing and crating for the move
Insurance on the goods while in transit
Duties and other non-refundable taxes on the movement etc

Direct costs are split across the moved items in proportion to relocated quantity. If 100 units move and the freight is 500, 60 of those units absorb 300 and 40 absorb 200. The final unit in each row absorbs any rounding remainder so the legs always sum exactly.

A Direct cost raises the unit cost of the moved stock. It is released to the cost of goods sold — to the chosen Allocation account — when those units are later sold, never at transfer time.

4.2 Indirect Costs

An Indirect cost cannot be traced to specific units, or arose after the goods were already at their location. It is expensed immediately and never touches inventory value:

Warehouse labour and storage charges
General handling overheads
Administrative costs of arranging the move
Selling and distribution costs etc

An Indirect cost posts straight to its Allocation account (or the suspense account when none is chosen) on the transfer date. It has no effect on quantities, cost layers, or future cost of goods sold.

4.3 Allocation Account

The Allocation field on each cost row answers a different question depending on the row type:

Row type	What Allocation means	When it takes effect
Direct	Where the capitalised cost is released	When the goods are sold — the cost-of-goods entry debits this account instead of the default expense account
Indirect	Where the cost is expensed	Immediately, on the transfer date

Choosing an Allocation account does not expense a Direct cost early. A Direct cost is always capitalised into inventory first, whatever account is chosen — the account only decides where it lands on sale. To expense a cost immediately, use the Indirect type.

5. Tax on Transfer Costs

Each cost row may carry a Tax Code. The tax is computed on the row's cost amount. What happens to the tax then depends entirely on which account each tax component points at in the tax code setup (Settings → Tax Codes). Each component is processed independently, so one tax code can produce several different outcomes at once.

Tax is charged on the tax-exclusive amount. The Cost Amount you enter is always the figure before tax — enter 100 for a 100 cost, not 115 (15%).

5.1 Which Taxes Belong in Cost

Tax nature	Treatment
Non-refundable (customs duty, non-deductible VAT, stamp duty)	Part of inventory cost on a Direct row; part of the expense on an Indirect row
Recoverable input tax (claimable VAT/GST)	Never part of cost. Posted as a separate asset leg so it can be reclaimed in a tax return

Only non-refundable taxes form part of inventory cost. A reclaimable input tax is a receivable from the tax authority, not a cost of the goods.

5.2 Default Tax Payable

When a tax component points at the default Tax Payable account — or when no account is set on the component at all (blank means the default applies) — the tax is treated as non-recoverable:

On a Direct row, the tax is added to the inventory leg. A 500 cost with 45 tax becomes a 545 inventory debit.
On an Indirect row, the tax is added to the expense leg. A 400 cost with 36 tax becomes a 436 expense debit.
The credit side splits: the net cost goes to Cash or Accounts Payable, and the tax portion goes to a separate Tax Payable credit, so the liability is tracked instead of being buried in the cash line.

Example — Direct 500 with 9% default tax, paid from bank:

Dr  Inventory On Hand @ destination               545
    Cr  Cash at Bank                                500
    Cr  Tax Payable                                  45

5.3 Withholding Tax

When a component points at the Withholding Tax Payable account, the tax is withheld from the payment rather than paid to the vendor. It is still part of cost (non-recoverable), but the credit splits three ways:

Dr  Inventory On Hand @ destination               590    (500 + 90 WHT)
    Cr  Cash at Bank                                500    (net paid to vendor)
    Cr  Withholding Tax Payable                      90    (remitted to authority)

Crediting the full gross to Cash when tax has been withheld understates the bank balance by the withheld amount. Always let the withheld portion post to its payable account.

5.4 Recoverable Input Tax

To reclaim input tax, the tax code component must point at a dedicated input-tax receivable account created in the Chart of Accounts (for example "Input VAT Receivable"). Leaving the component blank falls back to Tax Payable, which means non-recoverable — the tax would then wrongly capitalise into inventory.

Example — Direct 500 with 9% recoverable tax, paid from bank:

Dr  Inventory On Hand @ destination               500    (tax excluded)
Dr  Input Tax Receivable                           45    (separate asset)
    Cr  Cash at Bank                                545

The inventory layers rise by 500 only. The 45 sits as an asset until claimed in a tax return.

If each component of a multi-rate code (for example CGST and SGST) points at a different receivable account, each head posts its own leg and stays separately claimable. Pointing both at the same account merges them into one balance.

5.5 Custom Liability Accounts

If a tax component points at a custom liability account of your own (anything other than the two built-in payable accounts or a receivable asset), it is treated as non-recoverable:

The tax is folded into the row's cost — capitalised on a Direct row, expensed on an Indirect row.
The credit splits to your custom account, not to the default Tax Payable — so the liability is tracked where you set it up.

Dr  Inventory On Hand @ destination               550    (500 + 50 duty)
    Cr  Cash at Bank                                500
    Cr  Custom Duty Payable                          50

Do not point a component at a custom liability account and expect input-tax treatment. Only accounts set up as receivables produce a separate asset leg. A liability account — custom or built-in — always means the tax forms part of cost.

5.6 Multi-Rate Tax Codes

A tax code may hold several components at different rates and accounts — for example CGST 9% to a receivable and SGST 9% to a payable. Each component is processed independently and may therefore take a different path on the same row:

Direct 500, CGST 9% (receivable) + SGST 9% (payable):
Dr  Inventory On Hand @ destination               545    (500 + 45 SGST)
Dr  Input Tax Receivable — CGST                    45
    Cr  Cash at Bank                                545
    Cr  Tax Payable                                  45

The row shows the combined tax; the journal and the document view break it down per account.

6. Payment — Paid vs Owed

You set	Meaning	Credit goes to
Paid From (bank account)	Costs have been paid	Cash at Bank
Paid To (supplier)	Bill received, not yet paid	Accounts Payable — settled later with a separate payment
Neither	Liability unresolved	Suspense account — correct it by setting the bank or supplier and re-saving

If both are set, the bank wins. The document header also shows a Status of Paid when a bank account is set, otherwise Not Paid.

7. Journal Entries

7.1 Quantity Movement

Every transfer posts two quantity-only legs — no money changes hands on these:

Inventory On Hand @ Source        Qty: −n      Amount: 0.00
Inventory On Hand @ Destination   Qty: +n      Amount: 0.00

7.2 Direct Cost

One debit leg per item, split in proportion to relocated quantity, plus the credit:

Dr  Inventory On Hand @ destination               500
    Cr  Cash at Bank                                500

7.3 Indirect Cost

Dr  Warehouse Labour Expense                      400
    Cr  Cash at Bank                                400

No inventory account is touched and no cost layers change.

7.4 Combined Example

Transfer 100 units with Direct cost 500, Indirect cost 400, recoverable tax 90, paid from bank:

Dr  Inventory On Hand @ destination               500
Dr  Warehouse Labour Expense                      400
Dr  Input Tax Receivable                           90
    Cr  Cash at Bank                                990

Dr 500 + 400 + 90 = 990 = Cr 990  ✓
Quantity change: 0  ✓

8. Inventory Valuation Impact

Only Direct costs change inventory value. The uplift is spread across the relocated units and merged into the item's existing cost layers, preserving the item's valuation method:

FIFO — the moved units are extracted from the oldest layers first, then re-inserted as one layer at the uplifted unit cost.
LIFO — the same, from the newest layers first.
Moving average — the total cost rises; the average recomputes automatically.

Quantity never changes as a result of costs — only the unit cost moves.

A partial transfer uplifts only the moved units. Units that stayed behind keep their original cost — so after a partial move the same item can correctly carry two different unit costs until the older layer is consumed.

9. Insufficient Quantity

A transfer cannot move more stock than exists in total. If any line asks for more than the item's total on-hand quantity as of the transfer date, saving is blocked with a message naming the item and the available quantity.

A separate non-blocking warning appears when the source location alone is short — the overall total may still suffice (for example when opening stock cannot be attributed to a location). Treat the warning as a data-quality signal and confirm the physical stock before proceeding.

Opening stock caveat: opening balances carry no location, so a location shortfall warning can appear even when the total is sufficient. The block itself uses the item total and is unaffected.

10. Viewing Transfers and Costs

Open a transfer to see its items, then its cost rows — each showing type, amount, allocation account and tax. Below them, totals break down the document:

Direct (capitalised) — grouped by allocation account
Indirect (expensed) — grouped by the posted account
Recoverable tax — one line per tax asset account
Total — Direct + Indirect + Recoverable tax

Lines prefixed “of which:” (Tax Payable, Withholding Tax Payable) are memoranda — their amounts already sit inside the Direct and Indirect figures above and are not added to the Total again.

The Journal Entry link on the document shows every debit and credit, including the tax and payment legs. Quantity legs appear with amounts of zero; cost, tax and payment legs carry the money.

11. Accounting Regulations

11.1 IAS 2 — Inventories

Requirement	How this system complies
Cost comprises all costs of purchase, conversion, and other costs to bring inventories to their present location and condition (§10)	Direct transfer costs are capitalised into inventory at the destination location.
Only non-refundable taxes form part of cost (§10)	Recoverable input tax posts as a separate asset and never enters inventory value; non-refundable taxes join the cost leg.
Administrative overheads not contributing to location/condition, and selling costs, are excluded (§11)	Indirect costs post straight to profit and loss and never touch inventory value.
Cost formulas: FIFO or weighted average (§25); same formula for similar items (§27)	The transfer never changes an item's valuation method; uplifted units re-enter the existing layers in method order.
Carrying amount recognised as expense when sold (§34)	Capitalised transfer cost is released through the normal cost-of-goods calculation on sale, to the chosen allocation account.
Lower of cost and net realisable value (§28–33)	Write-down checks run after transfers settle, so they test the post-freight carrying amount.

11.2 DR = CR

Inventory Transfer — 100 units, Direct 500, Indirect 400, recoverable tax 90:
    Dr Inventory On Hand @ destination               500
    Dr Warehouse Labour Expense                      400
    Dr Input Tax Receivable                           90
    Cr Cash at Bank                                    990

    Debits 990 = Credits 990  ✓
    Net quantity: −100 + (+100) = 0  ✓

11.3 NBR VAT Act 2012 (Bangladesh)

Transfer freight is an inter-warehouse movement within one entity, not a supply — no output tax arises on the movement itself.
Input tax on transfer costs is reclaimable only where the VAT rules allow it for the specific supply; a dedicated input-tax receivable account keeps each head separately claimable in the return.
Withholding tax deducted from carrier payments follows the standard deduction-at-source rules and is tracked as its own payable.

12. Limitations and Notes

One transfer, one freight invoice assumption: costs entered on the transfer are assumed to belong to that movement. Costs arriving after the goods have been sold cannot attach to layers that no longer exist — the unattached portion is parked in the suspense account for clearing.
Quantity-proportional allocation: a Direct cost shared across several items is split by relocated quantity, not by value. On mixed high/low-value loads this systematically over-allocates to cheap high-volume lines. Enter separate rows per item when precision matters.
No per-location cost layers: cost is tracked per item across all locations. Location-level unit costs are not maintained.
Internal recharges (allocated staff time, accrued utilities with no external bill) cannot be expressed as transfer costs — record those with a separate journal entry.
Recoverable tax needs its own account: without a dedicated input-tax receivable account on the tax code, input tax falls back to the payable account and capitalises into cost. Set the receivable account up before relying on reclaims.
Custom reports show monetary transfer legs. Zero-amount quantity markers are excluded from financial views; quantity movement remains visible in the quantity-on-hand and transfer-lines views.

End of Inventory Transfers Guide