How to Create a product category

Product Categories

Product categories are used when accounting transactions related to products need to use more than one account.

You would use them when you want or need them,

1. Different income and expenses account for different products.

2. Different stock valuation accounts for different products.

3. Different price difference accounts.

How to Create a Product Category

1.  Go to your Accounting Module > Configurations > Product Categories.
                                                                                                                                                              
2. Click on NEW.

     3. After that, you will be asked to fill in the following information. 

• Category Name - This will be the name of your Product Category.
• Parent Category - This will be the category under which the Product Category that you are creating will be designated. The Product Category you will create will be considered as a Child Category of the Parent Category selected.
• Company - As we are in a multi-company environment we have to select the relevant company
• Routes  -  Through which route the product is moved to the relevant destination.
• Force Removal Strategy   -   Through this function, we will decide which product is moved first out from your store
• Costing Method - This can be Standard, FIFO, or Average. In your case, we will use FIFO.
• Inventory Valuation - This can be manual or automated, we will choose automated. And as soon as you click on automated, the Account stock properties area will appear.
• Income Account - This will be an Income account specific to this Product category.
• Expense Account - This will be the Cost of Goods sold account specifically created for this Product Category.
• Stock Valuation Account - This will be the main inventory account specific to this Product category. Or it can be your inventory account in general.
• Stock Journal - This will be the Inventory Valuation journal.
• Stock Input Account - This is an interim account created for this specific Product Category. Or this can be the stock input account in general. This will be debited if we made a purchase and a bill is created instead of the main inventory account. The purchase will sit under this account until the goods purchased are received.
• Stock Output Account - This is an interim account created for this specific Product Category. Or this can be the stock output account in general. This will be credited instead of the main inventory account once we created a Sale and an invoice. The sale of the goods will sit under this account until the goods are delivered to the buyer.
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     4. After filling in the required information, click on the Save manually button.

You have now created a product category and completed the account mapping for the product category.

Now we will see how the GL accounts will get updated in an invoice when we select a product related to the product category created.

     1. Go to Accounting > Customers > Invoices.                                                  
    2. Click on New  

     3. Fill in the relevant fields. 

     4. Click Add a Line under the Invoice Lines tab.

   
  5. Select a Product related to the relevant product category and you can see how the Account column gets automatically updated based on the Account Properties in the relevant product category. 

     6. After that, click on Confirm and go to the Journal Items tab. You will see from here the journal items get automatically created as the Product Category is linked to the product.