Profitability on sales in System Five starts from the category setup. During the category setup the 3-digit category code will determine the ledger codes for Income and Cost of Goods sold. The cost of the goods is set from the cost of the product brought in from during the PO receiving. During invoicing, the cost of goods is brought into the invoice as well as the retail price. The difference between these selling prices and the cost prices will determine the profitability.

Profitability calculation begin with the category setup which can be accessed through Setup Tools → Configuration → Category Setup.

Figure 1 shows a Main Category Setup with the ranges of Sub categories.

Figure 1 - Category Setup Screen

The three digit category will dictate the Income and Cost ledgers. The default setup as show in Figure 2 will prefix a 4 to your category number for the income account and prefix a 5 for the cost of goods sold account.

Figure 2 - Subcategory Setup Screen

The inventory cost is determined by the landed cost defined in the received purchase order. System Five uses a FIFO (First In First Out) method of selecting the next item sold. When selling stock from the example in Figure 3, the stock from the first 5 items at the top of the list will be sold first. The amount of $99.495 will be deducted from the inventory holding account (Default 1200) and moved to the Cost of Goods sold account (5xxx where xxx is the 3 digit category number) during the invoicing.

Figure 3 - Inventory cost and stock levels