faq:inventory_reconciliation
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| faq:inventory_reconciliation [2010/11/17 15:04 (14 years ago)] – cliff | faq:inventory_reconciliation [2021/09/03 16:50 (3 years ago)] (current) – [Inventory Reconciliation] jbalasabas | ||
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| ====== Inventory Reconciliation ====== | ====== Inventory Reconciliation ====== | ||
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| + | Freshdesk: https:// | ||
| ===== Check your processes ===== | ===== Check your processes ===== | ||
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| So what happens if you change a PO line, an inventory value line on a bill, or a line on an invoice? The answer is you break things, and can no longer reconcile. If you follow proper processes things should reconcile unless you change things after the fact. The one exception to note is overselling. If you oversell on an invoice you oversell at standard cost. When you receive the product at cost other than standard, there is now an outage in the system. In order to fix this issue you have to go back to all invoices that were oversold and change the cost on them to the amounts from the PO line(s) that would have filled them. | So what happens if you change a PO line, an inventory value line on a bill, or a line on an invoice? The answer is you break things, and can no longer reconcile. If you follow proper processes things should reconcile unless you change things after the fact. The one exception to note is overselling. If you oversell on an invoice you oversell at standard cost. When you receive the product at cost other than standard, there is now an outage in the system. In order to fix this issue you have to go back to all invoices that were oversold and change the cost on them to the amounts from the PO line(s) that would have filled them. | ||
| - | So what kind of things can cause problems if you change them after the fact? If you change either side of the PO to Bill, or PO to Invoice process you will be out of reconciliation. So editing cost or quantity of a PO line, editing cost or quantity of an invoice line, or changing the amount on the inventory line of a bill after the fact will cause problems. Manual adjustments effect the sub-ledger totals so we need to place manual adjustments in the list of things that break reconciliation. So why do manual adjustments break the system? Ans: because every manual adjustment has to have a corresponding GL adjustment of equivalent dollar value. | + | So what kind of things can cause problems if you change them after the fact? If you change either side of the PO to Bill, or PO to Invoice process you will be out of reconciliation. So editing cost or quantity of a PO line, editing cost or quantity of an invoice line, or changing the amount on the inventory line of a bill after the fact will cause problems. Manual adjustments effect the sub-ledger totals so we need to place manual adjustments in the list of things that break reconciliation. So why do manual adjustments break the system? Ans: because every manual adjustment has to have a corresponding GL adjustment of equivalent dollar value. |
| - | * Change the cost on an invoice line | + | |
| - | * Change the cost or quantity on a PO line | + | |
| - | * Change the Inventory Value posting on a bill | + | |
| - | * Oversell an item on an invoice | + | |
| - | * Make a manual adjustment without a corresponding GL entry to that hits the inventory value for the same amount | + | |
| + | * Here are some key points: | ||
| + | * Do not change the cost on an invoice line | ||
| + | * Do not change the cost or quantity on a PO line after PO is completed | ||
| + | * Do not change the Inventory Value posting on a bill | ||
| + | * Do not oversell an item on an invoice | ||
| + | * Do not make a manual adjustment without a corresponding GL entry to that hits the inventory value for the same amount | ||
| ===== Process Suggestions ===== | ===== Process Suggestions ===== | ||
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| * Why is a 5000 level account used instead of a 6000 level account? | * Why is a 5000 level account used instead of a 6000 level account? | ||
| - This is because when you view GL profitability, | - This is because when you view GL profitability, | ||
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| + | ==== Multi currency discussion on entering bills to match the PO ==== | ||
| + | Multi currency transactions add another element to your transactions for the purpose of inventory reconciliation. There are a few best practice requirements that I should mention before letting you know the standard way to make sure your PO and Bill entry procedures don't cause outages. | ||
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| + | * One supplier account for each currency you work with a supplier, and all activity for that supplier be in that one currency. It is important for reconciliation to only use one supplier account for that one currency. | ||
| + | * Your inventory account must have a currency on it and that must be your local currency | ||
| + | * You must set your exchange rate at the start of the day before any entries are made, and may not change the rate after the fact. | ||
| + | * May add more to this list later as I remember more of them. This is a good start though. | ||
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| + | * Receive your PO and take note of the date and total landed value of the PO | ||
| + | * Enter a bill and make sure the inventory value account matches the total landed value of the PO, and the date matches the receiving date of the PO. | ||
| + | * GAAP ALERT: If you have multiple receiving' | ||
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| + | Explanation: | ||
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| + | GAAP stands for generally accepted accounting principles. One of those principles is that the inventory be recorded to your accounting system on the date it is received. This principle simplifies all the scenarios and details into one idea. If you stray from this, you must make sure you have made all of the appropriate adjustments, | ||
| + | < | ||
| + | Excerpt from Federal Accounting Standards Advisory Board | ||
| + | -------------------------------------------------------- | ||
| + | 38. Recognition. The consumption method of accounting for the recognition of expenses shall | ||
| + | be applied for operating materials and supplies. Operating materials and supplies shall be | ||
| + | recognized and reported as assets when produced or purchased. “Purchased” is defined as | ||
| + | when title passes to the purchasing entity. If the contract between the buyer and the seller is | ||
| + | silent regarding passage of title, title is assumed to pass upon delivery of the goods. Delivery | ||
| + | or constructive delivery shall be based on the terms of the contract regarding shipping and/ | ||
| + | delivery | ||
| + | </ | ||
| + | In multi currency systems you will start by entering a PO for your supplier just like in a non-inventory system. The only real difference is that there are different currencies you can view the PO in. It will default to viewing the PO in the currency of the supplier you chose. When you receive the purchase order it is like taking a snapshot in time as all the items received are then permanently set to be the currency of your inventory value account (your local currency). The PO has created the sub-ledger entries and valued them in your local currency at the date of receiving. They will now stay stable at that value in your local currency. This prevents your inventory from changing value in your local currency every time the exchange rate changes. This is important on the ledger side of things because that snapshot in time captures the value that will be used as the value when you sell the product on an invoice to a customer. Why is the date so important? | ||
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| + | Assume each date has a different exchange rate. Then if you have a different date on the PO receiving and Bill associated to that receiving you run into a problem. The invoice to the customer will have a different value than the bill that put it onto the ledger. What went into inventory end up not matching what comes out of inventory. It should make sense that if we put $100 (local currency) of product into inventory that we must take out $100 (local currency) when selling the inventory. So don't calculate the local currency two different ways by choosing two different rates: keep the same rate by using the same date. | ||
| ==== Changing cost on an invoice line ==== | ==== Changing cost on an invoice line ==== | ||
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| ===== My Purchase & Sales History doesn' | ===== My Purchase & Sales History doesn' | ||
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| Sometimes it is not so easy to tell what caused the problem. In order to seek out where the trouble is there are some reports and routines we can use. It is often necessary to qualify whether we should be using this report, so I will try to add some information that might indicate you should use this report of routine. | Sometimes it is not so easy to tell what caused the problem. In order to seek out where the trouble is there are some reports and routines we can use. It is often necessary to qualify whether we should be using this report, so I will try to add some information that might indicate you should use this report of routine. | ||
| + | ==== Back dated inventory value report ==== | ||
| + | This report takes into account some, but not all variables that allow us to back date inventory value. So this report can not be used for accounting purposes. In order to get accurate information on what the inventory value was at a specific point in time, you must actually save a backup from that date and time. Since this is normally needed for review at month end, I would suggest that you archive your month end backups. This does not work for everyone, because they are not up to date with data entry. If that is the case any transactions that were not in the backup that need to be in the backup would have to be entered into the backed up data set (double entered) | ||
| + | ==== Stock/ | ||
| + | This report is designed to compare a back dated inventory value to the ledger, and give you how far they are out on a month by month basis. It uses the same code as the back dated inventory value report and thus can not be used for accounting purposes either. | ||
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| + | ===== Best Practice Methods ===== | ||
| + | For inventory reconciliation there is are best practice methods that allow you to stay reconcilied. Here are some key practices to get this list started. | ||
| + | * Create the bill for a purchase order on the same day that the PO is entered. Even if you have not received it, you can then update the details when you receive the paperwork. | ||
| + | * Don't change prices on Purchase orders after you have received it | ||
| + | * Choose to use the " | ||
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| + | ==== Freight Included Method ==== | ||
| + | * Purchase orders do include freight, extra, and/or duty on the purchase order increasing the total landed value of the product on the PO | ||
| + | * Bills put all charges associated to cost, freight, extra, and duty to the inventory value account (normally 1200). | ||
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| + | ==== Freight Not Included Method ==== | ||
| + | * Purchase orders do not include freight, extra, or duty on the purchase order. | ||
| + | * Bills post any freight, extra, or duty charges to the appropriate cost of goods sold account (COGS, a 5000 series account) or to an expense account (6000 series and above). | ||
| ===== Footer ===== | ===== Footer ===== | ||
faq/inventory_reconciliation.1290035044.txt.gz · Last modified: 2010/11/17 15:04 (14 years ago) by cliff