Course Description• Audience – Microsoft Dynamics Certified Partners’ employees selling, implementing, and supporting Microsoft Dynamics NAV 2009• Training Goal: – Learn the basics and advanced features of Inventory Costing
Course Objectives• To provide an overview on inventory valuation and accounting principles• To instruct on managing, monitoring, analyzing, and tracing inventory costs in Microsoft Dynamics NAV 2009
Course Objectives What areyour objectives and expectations?
Session 1 Outline• Inventory costs • Unit cost calculation• Inventory accounting • Costing methods principles – FIFO, LIFO, Standard, – Bases Specific – Cost object – Average – Cost flow assumptions • Inventory transfers• Inventory posting flow and returns• Inventory periods • Inventory adjustment functionality
Microsoft Dynamics NAV 2009 Inventory Costing Overview
Base Equation Cost of Ending Beginning Net GoodsInventory Inventory Purchases Sold
Cost Classification Costs Included in the Balance Sheet and Income Statement Capitalized Non-capitalized Non-Inventoriable inventoriable
Perpetual Inventory Method Perpetual inventory method – a method that records and calculates the cost of withdrawals at the time the items are taken from inventory Cost of Ending Beginning Net GoodsInventory Inventory Purchases (known) (known) (recorded) Sold (solved for)
Bases of Inventory Valuation• Acquisition cost – historical cost of items• Standard cost – an estimate of what inventory items should cost• Net realizable cost – amount that a company could realize as a willing seller with a willing buyer• Replacement cost – amount the company would have to pay to acquire the item• Lower-of-cost-or-market-basis – lesser of acquisition cost and market value
Cost Object and Cost Assignment Cost Object -anything for which a separate measurement of costs is desiredDirect Costs Indirect Costs
Accounting for Inventory Cost of Net GoodsPurchases Sold
Cost Flow Assumptions First-In, First-Out Beginning Ending Inventory Inventory + + Goods Available for Cost of GoodsNet Purchases Sale Sold
Cost Flow Assumptions Last-In, First-Out Beginning Ending Inventory Inventory + + Goods Available for Cost of GoodsNet Purchases Sale Sold
Cost Flow Assumptions Weighted Average Beginning Ending Inventory Inventory + + Goods Available for Cost of GoodsNet Purchases Sale Sold
Microsoft Dynamics NAV 2009 Inventory Costing Principles
Determining the Value of Inventory Posting Reconciliation Value Entries General LedgerInventory Transaction Entries Item Ledger Entries
Accounting for InventoryPosting Date 0D .Starting Date Value of Quantity on Hand . . . . Value of Inventory Increases . . . Value of Inventory Decreases . . .Ending Date Inventory Value on Ending Date
Inventory PeriodsAccounting Period Accounting Period Accounting Period Inventory Period Inventory Period Inventory Period Outbound entries closed Costs adjusted & posted to G/L Close CloseAccounting Period Accounting Period Accounting Period Inventory Period Inventory Period Inventory Period ReopenAccounting Period Accounting Period Accounting Period Inventory Period Inventory Period Inventory Period Late postings, cost adjustments, additional costs, and so on.
Microsoft Dynamics NAV 2009 Inventory Costing Functionality
Unit Cost Calculation Valuation Acquisition Cost Standard Cost BaseFIFO, LIFO, Specific Costing Standard Average Method Last Direct Cost(+ Indirect Cost % + Overhead Rate) Field Standard Cost Average Cost Unit Cost
Unit Cost Posting • Purchased quantityInbound transaction • Related item charge • Entry with direct unit cost Value entries • Entry with item charge as indirect cost Entry with unit cost + item chargeItem ledger entries as Cost Amount (Actual)
Linking Inventory Increases and Decreases User DecreaseInventory Fixed Application Increase Link Application Method Costing Method
Costing MethodsCosting method – a combination of application methods and cost flow assumptions + +
Cost Shares Breakdown The Cost Shares Breakdown Report• Print Cost Share option: – Sale – Inventory – WIP Inventory• Cost elements: – Purchase and material – Capacity and capacity overhead – Manufacturing overhead – Subcontracted cost – Other
Inventory Transfers TransferInventory Increase Inventory DecreaseInbound Entries Outbound Entries Inbound Entries Outbound Entries Application Location A Location B valued according to costing method
Inventory Returns Exact Cost Reversal• Cancels the effect of postings made to COGS accounts • Restores the items in inventory at the correct cost Purchase Outbound Return Inbound Return Sale Inbound Entries Outbound Entries Fixed Application Location A
Inventory AdjustmentItem cost may need to be adjusted if:• The item is valued according to FIFO or LIFO costing methods• Unit cost is changed due to additional direct cost• The item is valued at average cost• Sales occur before purchase
Inventory AdjustmentWays of adjusting inventory costs:• Adjust Cost – Item Entries batch job – For each item better performance – For each item category – For all items• Automatic adjustment – Daily – Weekly – Monthly – Yearly – Always (when posting occurs)
Rounding Average costing method Cumulative rounding entry10/3 = 3.(3) Separate rounding entry Other costing methods
Session 1 Summary• Costs are classified as: – Capitalized, non-capitalized – Inventoriable, non-inventoriable• Direct costs are traced to the cost object, indirect costs – allocated to the cost object• Supported cost flow assumptions are FIFO, LIFO, Weighted Average• Inventory posting is comprised of quantity and value posting• Posting flow includes creation of the following entries: – Value entries – Item ledger entries – General ledger entries• Inventory periods help with posting of inventory transactions
Session 1 Summary• Unit cost on purchase line is retrieved based on the item’s costing method• Unit cost on sales line depends on how the link is established between the inventory increase and decrease• Supported costing methods are FIFO, LIFO, Average, Specific, Standard• Entry application can be of two types: – Based on the costing method – Fixed application• Average cost depends on the valuation date• Non-inventoriable costs can be recorded as item charges
Session 1 Summary• Inventory transfers are valued using the transfer application• Inventory returns are valued using the fixed application• Inventory costs need to be adjusted automatically or using the adjustment batch job• Rounding is facilitated by creating cumulative or standalone rounding value entries
Inventory Valuation ReportPosting DateStarting Date Value of Quantity on Hand . . . . Value of Inventory Increases . . . Value of Inventory Decreases . . . . Expected Costs . . .Ending Date Inventory Value on Ending Date
Posting Inventory Costs to G/LBalance Sheet Income StatementAccount Name Account Name Direct Cost Applied Purchase Credit Overhead Applied Ledger Entries Purchase Variance Inventory Sale Debit COGS Ledger Entries
The Post Inventory Cost to G/L Batch Job Processing Algorithm:1. Determine the posting method.2. Determine whether expected cost posting is enabled.3. Calculate the amounts to be posted: Amount to be posted = Cost Amount (Actual) - Cost Posted to G/L4. Create general ledger entries for the calculated amounts.5. Update the Cost Posted to G/L field: Cost Posted to G/L = Cost Amount (Actual)6. Update the Cost is Posted to G/L field on the item card.7. Display the report.
Posting Expected Inventory Value Expected Cost Amount Cost Posted Amount to be posted to G/L (Expected) Post Inventory Cost to G/L Post Inventory Cost to G/L batch job batch job 1 2 Amount Interim Regularto be posted G/L Accounts G/L Accounts
Tracing G/L EntriesGeneral ledger entries can be traced to underlying value and item ledger entries because of the following features:• Inventory – G/L Reconciliation tool – Displays reconciliation differences between the inventory ledger and G/L – Allows to drill-down to specific entries – Exposes the reasons for reconciliation differences• Links between value and general ledger entries – One-to-one relation – One-to-many relation
Inventory RevaluationRevaluable quantity = Sum of quantities on invoiced item ledger entries forall inventory increases and decreases with posting dates equal or earlier thanthe revaluation date• For standard-valued items, expected costs can also be revalued (interim inventory accounts in G/L will be affected)Ways of performing revaluation in the revaluation journal:• Entering a line manually and applying it to the item ledger entry in question• Running the Calculate Inventory Value batch job
Physical Inventory Actual CalculatedQuantity on Hand Quantity on Hand Adjust Cost – Item Entries batch job Adjustments Physical Inventory Count
Microsoft Dynamics NAV 2009 Inventory Costing Setup
Inventory Costing SetupThe setup of Inventory Costing consists of:• Setup of inventory periods• General setup – Automatic Cost Posting – Expected Cost Posting to G/L – Average Cost Calculation Type – Average Cost Period• Individual item setup – Costing Method
Session 2 Summary• Inventory is valued based on value entries.• Inventory cost is posted to the income statement and balance sheet accounts in the General Ledger based on the types of value and item ledger entries.• The Post Inventory Cost to G/L batch job can post per entry or per posting group.• Expected inventory value can be posted to interim inventory accounts.• General ledger entries can be traced down to underlying value and item ledger entries.
Session 2 Summary• Revaluation is based on actual cost (or expected cost for standard-valued items).• The Calculate Inventory Value batch job allows to perform inventory revaluation to a wider extent.• Physical inventory counting helps resolve differences between the actual and calculated quantity of items on hand.• Inventory costing setup reflects the way the company decides to control and account for its inventory value.
Course Summary The course highlighted the following points:• Classification of inventory costs, definition of cost object• Bases of inventory valuation, cost flow assumptions• Costing methods and application of entries• Inventory posting flow, unit cost and average cost calculation• Cost flow of inventory transfers and returns• Cost adjustment and rounding• Reconciliation between inventory ledger and G/L• Inventory revaluation• Setup of the Inventory Costing functionality
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