Production Orders — Complete User Guide — Two Accounts Web

Comprehensive guide for managing manufacturing and production orders, tracking raw material consumption, work-in-progress, and finished goods output

Table of Contents

1. What Are Production Orders?
2. Enabling the Tab via Customize Menu
3. System Accounts
   • Production in Progress Account
   • Production Stage on Inventory Items
4. Field-by-Field Guide
   • Header Fields
   • Bill of Materials Line Fields
   • Expense Item Fields
5. Creating a Production Order
6. Production Order Lifecycle
   • Raw Material Consumption
   • Manufacturing Process
   • Finished Goods Output
   • Non-Inventory Costs
7. Accounting Impact
   • GL Posting
   • Cost Calculation
8. Opening Balances
9. Reports
   • Production Orders Listing
   • Inventory Item Transactions
   • Inventory Quantity Summary
   • Production Stage Elevation
10. Sample Data and Report Output
11. Accounting Regulation Compliance

1. What Are Production Orders?

A Production Order documents the manufacturing process where raw materials (Bill of Materials items) are consumed to produce a finished inventory item. It tracks the full production lifecycle from raw material issuance through work-in-progress to finished goods receipt.

Production Orders are used for:

• Manufacturing — converting raw materials into finished goods
• Assembly — combining multiple components into a single product
• Processing — applying labor and overhead to transform materials
• Production tracking — monitoring quantities produced versus materials consumed
• Cost accumulation — capturing the total manufacturing cost (materials + expenses)

2. Enabling the Tab via Customize Menu

Production Orders is a sub-tab of the Inventory Items tab. To enable:

1. First ensure Inventory Items is visible in the navigation bar
2. Open Customize Menu and find "Production Orders" in the list
3. Toggle to Visible and click Save

Once enabled, the following become available:

• Production Orders — the main listing of all production orders
• Production in Progress account — appears in the Chart of Accounts under Current Assets
• Production Stage field — appears on each Inventory Item record
• Custom fields — can be created with Placement = Production Orders

3. System Accounts

3.1 Production in Progress Account

The Production in Progress account is a Balance Sheet asset account that tracks the value of work-in-progress (WIP) inventory — materials that have been issued to production but are not yet completed as finished goods.

Navigate to Settings > Chart of Accounts to configure this account's name, code, and Balance Sheet group placement. The account is a singleton — only one instance exists per business.

3.2 Production Stage on Inventory Items

When Production Orders are enabled, each Inventory Item shows a Production Stage field. This optional numeric field indicates the processing stage required for that item:

• Lower number = raw material (e.g., 1 = basic material)
• Higher number = more processed (e.g., 3 = finished assembly)
• Null or 1 = no specific stage assigned

The Production Stage is used in the Production Stage Elevation report to verify that a finished item's stage is higher than its components' stages — ensuring that production flows in the correct direction (raw → semi-finished → finished).

4. Field-by-Field Guide

4.1 Header Fields

4.2 Bill of Materials Line Fields

4.3 Expense Item Fields

5. Creating a Production Order

1. Go to Production Orders > New Production Order
2. Set the Date
3. Enter a Description for the production run
4. Select the Finished Inventory Item being produced
5. Enter the Qty to produce
6. In the Bill of Materials table, add each raw material component:
   • Select the Bill of Materials item (the raw material)
   • Enter the Qty of raw material consumed for this production run
7. Optionally select an Inventory Location for the finished goods
8. If there are non-material costs, check Add Non-Inventory Cost Into Production and add Expense Items:
   • Select the Account (e.g., Direct Labour, Manufacturing Overhead)
   • Enter the Amount
9. Configure Theme if needed
10. Save

6. Production Order Lifecycle

6.1 Raw Material Consumption

When a Production Order is saved, the system immediately creates GL entries that debit raw materials from Inventory On Hand. The raw materials are moved from the main inventory account to a suspense account as cost of goods sold — this represents the issuance of materials to the production floor.

6.2 Manufacturing Process

During the Cost of Goods Sold calculation, the system:

1. Groups all Production Order transactions together
2. Tracks the accumulated material cost for each order
3. Creates GL entries moving material cost from Inventory On Hand to Production in Progress (WIP)
4. Accumulates non-inventory expenses (labour, overhead) for the order
5. When all BOM inputs have been fully consumed, marks the batch as complete

6.3 Finished Goods Output

When the production batch completes:

1. The system calculates total manufacturing cost = raw material cost + non-inventory expenses
2. A GL entry is created: Dr Inventory On Hand (finished goods), Cr Production in Progress (WIP)
3. The finished goods are added to inventory at the accumulated manufacturing cost per unit
4. The finished item appears in the Inventory Quantity Summary report as production output

6.4 Non-Inventory Costs

If expense items are added to the Production Order, these amounts:

• Are added to the total manufacturing cost
• Flow through the P&L account specified on each expense line
• Are included in the finished goods inventory valuation (capitalized into the product cost per IAS 2)

7. Accounting Impact

7.1 GL Posting

When a Production Order is saved, the system creates GL entries in multiple phases:

Phase 1 — Material Issuance (at save time, per BOM line):
    Dr  Inventory On Hand (raw material)         [negative qty, removes from stock]
        Cr  Inventory On Hand (suspense)                      [positive qty, balancing]
    Transaction amount: 0 (quantity-only adjustment)

Phase 2 — WIP Accumulation (during COGS calculation):
    Dr  Production in Progress (WIP)             [material cost]
        Cr  Inventory On Hand (raw material)                   [material cost]
    Both marked as IsCostOfGoodsSold = true
    Moves cost from inventory to WIP

Phase 3 — Non-Inventory Expenses (during COGS calculation):
    Dr  Production in Progress (WIP)             [expense amount]
        Cr  P&L Expense Account                               [expense amount]
    Non-material costs added to the production batch

Phase 4 — Finished Goods Output (when batch completes):
    Dr  Inventory On Hand (finished item)        [total manufacturing cost]
        Cr  Production in Progress (WIP)                       [total manufacturing cost]
    Finished goods added to inventory at accumulated cost

7.2 Cost Calculation

Total Manufacturing Cost = Material Cost + Non-Inventory Expenses

Unit Cost = Total Manufacturing Cost ÷ Quantity Produced

Where:
    Material Cost = weighted average cost of all BOM materials consumed
    Non-Inventory Expenses = sum of all Expense Item amounts
    Quantity Produced = the Qty field on the Production Order

The finished goods purchase layer is added at the Total Manufacturing Cost,
which becomes the cost basis for future sales of these items.

8. Opening Balances

Production Orders cannot have opening balances. The Production Order is a manufacturing transaction that records current-period production activity. Opening work-in-progress balances are not supported — all production starts with raw materials currently in stock.

To set opening stock levels for raw materials and finished goods:

• Raw materials opening stock — set via the Inventory Item form (Opening Inventory Quantity and Unit Cost)
• Finished goods opening stock — set via the Inventory Item form for each finished item

The Production Stage field on inventory items is optional and does not affect inventory valuation.

9. Reports

9.1 Production Orders Listing

The main Production Orders page shows all production orders with the following columns:

• Date — the production order date
• Reference — the production order reference
• Description — the production description
• Inventory Location — the location for finished goods
• Finished Inventory Item — the item being produced
• Qty — the quantity to produce
• Status — Complete (all BOM consumed) or Insufficient Quantity (partial consumption)

9.2 Inventory Item Transactions

When viewing transactions for a specific inventory item, Production Orders appear in two groups:

• BOM Consumption — raw material items consumed by the production order (negative quantity)
• Output — finished goods produced by the production order (positive quantity)

Production Order transactions have priority 3 in the default ordering (after Goods Receipts at 1 and Sales Invoices at 2).

9.3 Inventory Quantity Summary

The Inventory Quantity Summary report has a dedicated Production Orders filter button. When enabled:

• Production Order movements appear in their own column (separate from Purchases and Sales)
• The report computes finished goods output from the COGS calculation
• Production Order quantities are excluded from the standard Purchases and Sales columns to avoid double-counting

9.4 Production Stage Elevation

The Production Stage Elevation report (accessible from the Inventory Items context) checks whether each finished item's Production Stage is higher than the maximum stage of its BOM components. If not, a warning is displayed: "At least one inventory item requires production stage elevated." A batch operation is available to automatically update item stages to the required levels.

10. Sample Data and Report Output

Setup

Production Order PO-001

Phase 1 — Material Issuance (at save time)

Line 1 — Sheet Metal:  Dr Inventory On Hand (Sheet Metal)          Qty: −200 (2 × 100)
Line 2 — Plastic Moulding: Dr Inventory On Hand (Plastic Moulding)  Qty: −100 (1 × 100)
    Cr Inventory On Hand (suspense)                                 Qty: +300 (balancing)

All entries have a transaction amount of 0.00 — quantity-only adjustment at save time.

Phase 2 — WIP Accumulation (during COGS calculation)

Raw material cost at weighted average:
    Sheet Metal:    200 units × 20.00 = 4,000.00 BDT
    Plastic Moulding: 100 units × 15.00 = 1,500.00 BDT
    Total material cost: 5,500.00 BDT

GL entry:
    Dr  Production in Progress (WIP)         5,500.00
        Cr  Inventory On Hand                              5,500.00

Phase 3 — Non-Inventory Expenses

GL entry:
    Dr  Production in Progress (WIP)         5,000.00
        Cr  Direct Labour Expense                         5,000.00

Phase 4 — Finished Goods Output

Total manufacturing cost = 5,500.00 (materials) + 5,000.00 (labour) = 10,500.00 BDT
Unit cost = 10,500.00 ÷ 100 = 105.00 BDT per Widget-X

GL entry:
    Dr  Inventory On Hand (Widget-X — 100 units)    10,500.00
        Cr  Production in Progress (WIP)                          10,500.00

Inventory Impact Summary

DR = CR Verification

Phase 1 (at save — quantity only):
    Qtys: −200 + (−100) + 300 = 0 ✓
    Amounts: 0.00 = 0.00 ✓

Phase 2 (WIP material transfer):
    Dr  Production in Progress         5,500.00
        Cr  Inventory On Hand                      5,500.00
    DR = CR: 5,500.00 − 5,500.00 = 0.00 ✓

Phase 3 (Non-inventory expenses):
    Dr  Production in Progress         5,000.00
        Cr  Direct Labour Expense                   5,000.00
    DR = CR: 5,000.00 − 5,000.00 = 0.00 ✓

Phase 4 (Finished goods output):
    Dr  Inventory On Hand              10,500.00
        Cr  Production in Progress                  10,500.00
    DR = CR: 10,500.00 − 10,500.00 = 0.00 ✓

Total manufacturing cost:
    Materials:  5,500.00
    Labour:     5,000.00
    Total:      10,500.00
    Unit cost:  105.00 per Widget-X ✓

11. Accounting Regulation Compliance

11.1 IAS 2 — Inventories

Requirement (§4-6, §10-12): Inventories include finished goods, work-in-progress, and raw materials. The cost of inventories includes all costs of purchase, costs of conversion (direct labour and overhead), and other costs incurred to bring the inventories to their present location and condition.

How this system complies: The Production Order tracks the conversion of raw materials into finished goods. The system accumulates all manufacturing costs — raw material consumption at weighted average cost plus non-inventory expenses (labour, overhead) — and capitalizes them into the finished goods inventory value. The WIP account (Production in Progress) correctly shows the value of partially completed production on the Balance Sheet.

11.2 IAS 16 — Property, Plant and Equipment

Requirement (§7): Items of property, plant and equipment are tangible items held for use in the production or supply of goods.

How this system complies: Non-inventory expenses on Production Orders can include depreciation of manufacturing equipment, which is a component of conversion cost per IAS 2 §12. The Expense Items section allows capturing these costs and capitalizing them into finished goods inventory.

11.3 IAS 1 — Presentation of Financial Statements

Requirement (§54): Inventory and work-in-progress must be presented on the face of the Balance Sheet.

How this system complies: The Production in Progress account appears on the Balance Sheet under Current Assets when Production Orders exist. Raw materials and finished goods are tracked through the Inventory On Hand account. The system ensures WIP is zero at period end if all production orders have been completed (materials fully consumed → output recorded).

11.4 IAS 21 — The Effects of Changes in Foreign Exchange Rates

Requirement (§23): Non-monetary items (including inventory) measured at historical cost are translated at the exchange rate at the date of the transaction.

How this system complies: Production Orders use the base currency for all cost calculations. Raw materials are valued at their weighted average cost in the base currency. Finished goods output is valued at the accumulated manufacturing cost in base currency. No foreign exchange revaluation applies to inventory measured at historical cost.

11.5 DR = CR Verification

Phase 1 — Material issuance to production:
    Qtys consumed: Sheet Metal −200 + Plastic Moulding −100 + balancing +300 = 0 ✓
    Amounts: 0.00 (quantity-only entries at save time) ✓

Phase 2 — WIP transfer:
    Dr  Production in Progress      5,500.00
    Cr  Inventory On Hand           5,500.00
    DR = CR: 5,500.00 − 5,500.00 = 0.00 ✓

Phase 3 — Labour cost:
    Dr  Production in Progress      5,000.00
    Cr  Direct Labour Expense       5,000.00
    DR = CR: 5,000.00 − 5,000.00 = 0.00 ✓

Phase 4 — Finished goods:
    Dr  Inventory On Hand          10,500.00
    Cr  Production in Progress     10,500.00
    DR = CR: 10,500.00 − 10,500.00 = 0.00 ✓

Total cost: Materials 5,500 + Labour 5,000 = 10,500 BDT
Unit cost: 10,500 ÷ 100 = 105.00 BDT per unit ✓

11.6 Relevant but Not Applicable

• IFRS 15 (Revenue): Production Orders are manufacturing transactions, not revenue-generating transactions. Revenue is recognized when finished goods are sold, not when they are produced.
• IFRS 16 (Leases): Lease costs for manufacturing equipment can be included as non-inventory expenses on Production Orders, but the Production Order itself is not a lease arrangement.
• IAS 7 (Cash Flow Statement): Production Orders are inventory movements that do not involve cash. They affect the Balance Sheet (inventory, WIP) but do not appear directly on the Cash Flow Statement.

End of Production Orders Guide