Your SlideShare is downloading. ×
Chapter 2: Inventory Costing PrinciplesCHAPTER 2: INVENTORY COSTING PRINCIPLESObjectives               The objectives are:...
Inventory Costing in Microsoft Dynamics NAV 2009                There are two ways to reconcile inventory with the general...
Chapter 2: Inventory Costing PrinciplesInventory Posting FlowThe core of the costing structure in Microsoft Dynamics NAV 2...
Inventory Costing in Microsoft Dynamics NAV 2009                            Purchase                            Material  ...
Chapter 2: Inventory Costing PrinciplesNOTE: Starting from Microsoft Dynamics NAV version 3.60, an Undo QuantityPosting fu...
Inventory Costing in Microsoft Dynamics NAV 2009                Inventory Periods                An inventory period is a ...
Chapter 2: Inventory Costing PrinciplesTest Your Knowledge            1. What are the two ways you can post inventory cost...
Inventory Costing in Microsoft Dynamics NAV 2009Quick Interaction: Lessons Learned                Take a moment to write d...
Chapter 2: Inventory Costing PrinciplesSolutions      Test Your Knowledge             1. What are the two ways you can pos...
Upcoming SlideShare
Loading in...5
×

Na2009 enus inc_02

519

Published on

Published in: Technology, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
519
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
35
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Transcript of "Na2009 enus inc_02"

  1. 1. Chapter 2: Inventory Costing PrinciplesCHAPTER 2: INVENTORY COSTING PRINCIPLESObjectives The objectives are: Examine how the program records quantity and value changes in entries. Define the different types of information that are recorded in item ledger entries and value entries. Examine how inventory values are posted in the general ledger.Introduction The following inventory equation lies at the basis of the calculation of inventory value in Microsoft Dynamics® NAV 2009: Beginning + Net – Cost of = Ending Inventory Inventory Purchases Goods Sold (solved for) (known) (known) (recorded) Generally, it is assumed that the first element in the equation beginning inventory is known, since it is carried into the new financial period from the previous period. However, to calculate the value of the ending inventory, net purchases and the cost of goods sold must be recorded and calculated. This chapter discusses how the program records the cost of goods sold through the posting process and eventually calculates the value of the ending inventory.Accounting for Inventory in Microsoft Dynamics NAV Determining the Value of Inventory The program records the values of the net purchases and the cost of goods sold in two stages: Inventory Posting: First, every time a user posts a transaction of inventory increase or inventory decrease, the program records corresponding amounts in the item ledger and value entries and stores these records in the inventory ledger. General Ledger Posting: Second, the program posts inventory values generated by inbound and outbound transactions to the relevant general ledger (G/L) accounts. This is called reconciliation with the general ledger. Inventory posting takes place through the normal posting of transaction documents that you are already familiar with. Page 15
  2. 2. Inventory Costing in Microsoft Dynamics NAV 2009 There are two ways to reconcile inventory with the general ledger: Using the Post Inventory Cost to G/L batch job: The program makes postings to the G/L when the user runs the batch job. Postings can be summarized per posting group. Activating the automatic cost posting option in the inventory setup: The program makes postings to the G/L every time the user makes an inventory posting. In practical terms, the above inventory equation can be presented using the following diagram. FIGURE 2.1 DETERMINING THE INVENTORY VALUE IN MICROSOFT DYNAMICS NAV 2009 The following two sections clarify the general principles of inventory posting and posting of inventory to G/L, and describe the concept of inventory periods. An in-depth explanation of the inventory costing mechanism in Microsoft Dynamics NAV 2009 is the focus of the rest of this course.Page 16
  3. 3. Chapter 2: Inventory Costing PrinciplesInventory Posting FlowThe core of the costing structure in Microsoft Dynamics NAV 2009 is inventoryposting. There are two kinds of inventory posting: quantity and value.Quantity posting describes the change in quantity on inventory. The followingtransactions/movements result in a change of inventory quantity: Purchases (including sales returns) Sales (including purchase returns) Transfers Inventory adjustments Consumption OutputThe first four transactions are typical for a distribution company, while amanufacturing company additionally needs to take into account consumption andoutput transactions.Every time a user posts one of the above transactions, the program records theresulting change in inventory quantity as an item ledger entry.Value posting describes the change in inventory value. A change in inventoryvalue occurs every time there is a change in inventory quantity. However, aninventory value may also change without quantity changes taking place. Theprogram records the change in inventory value as a value entry. The programcreates a separate value entry for the value types that correspond to the followingcost components: Direct costs – costs that can be traced directly to a cost object, that is, item cost, freight cost, cost adjustment. Indirect costs – costs that are allocated without direct traceability to a cost object, that is, warehouse energy, wages and salaries. Rounding – differences that occur in connection with valuation of inventory decreases. Revaluations – differences in item value that occur in connection with valuation of inventory decreases. Variances – differences between actual and standard costs for an item using the standard costing method.Moreover, some of these costs can be broken down further. The direct cost of anitem, for example, can consist of the following cost components: item cost (thatis, direct purchase price), freight cost, insurance cost. Freight and insurance costsare item charges that can be added to the item cost at any time. Already examinedare the situations where the program creates direct, indirect, rounding andvariance types of value entries. The different types of variance are as follows: Page 17
  4. 4. Inventory Costing in Microsoft Dynamics NAV 2009 Purchase Material Capacity Subcontracted Capacity Overhead Manufacturing Overhead In this way, one or more value entries can exist for each item ledger entry. Each of the above-listed value entry types is looked at in detail in the subsequent sections of this manual. For WIP inventory, there is a special kind of quantity posting that accounts for capacity, which is measured in either time or units. This information is stored in capacity ledger entries. The related value entries describe the added value of the conversion cost. One or more value entries can exist per capacity ledger entry. Item ledger entries are applied against each other. To apply means to link an inventory increase with an inventory decrease so that it is possible to say exactly which increase was used for which decrease and vice versa. The program stores this information in item application entries. The relationship between the mentioned entries is represented on the following diagram. FIGURE 2.2 RELATIONSHIP BETWEEN VARIOUS ENTRIES IN MICROSOFT DYNAMICS NAV 2009 As with other kinds of entries in the program, you cannot delete item ledger or value entries after the corresponding document has been invoiced. If you have posted a document as invoiced with incorrect information, for example with an incorrect unit cost or quantity that affects inventory valuation, you must post a corrective document in order to create a balancing entry, and then you must post the original document with the correct information.Page 18
  5. 5. Chapter 2: Inventory Costing PrinciplesNOTE: Starting from Microsoft Dynamics NAV version 3.60, an Undo QuantityPosting function is available on the posted shipment and receipt documents toenable the user to undo an incorrectly recorded quantity in a transaction once arelated document has been posted as received/shipped.Due to a number of factors, the cost amounts initially posted as the value entriesmay not always reflect the correct inventory value. Therefore, the inventory costsmust be adjusted. The adjusting function, called the Adjust Cost Item Entriesbatch job in the application, is described in the "Inventory Adjustment" section,located in chapter 3.General Ledger PostingAmounts of inventory value and cost of goods sold are presented in thecorresponding accounts of the general ledger. These amounts are calculated onthe basis of the value entries that relate to each item ledger entry. Therefore, thevalue entries making up the inventory costs must be reconciled with the recordsof the general ledger. This reconciliation is done by posting inventory costs toG/L.In principle, the program uses the entry type of the value entry to determinewhich general ledger account to post the entry to, while the sign of the quantitydetermines whether the entry is an inventory increase or decrease.Inventory posting to G/L is explained in detail later in the manual in the "PostingInventory Costs to the General Ledger" section.A logical design of the inventory costing mechanism in Microsoft DynamicsNAV 2009 is represented in the following diagramFIGURE 2.3 INVENTORY COSTING IN MICROSOFT DYNAMICS NAV 2009Chapter 3 describes in detail the ways in which the program first recordsinventory acquisition costs and then cost of goods sold. Page 19
  6. 6. Inventory Costing in Microsoft Dynamics NAV 2009 Inventory Periods An inventory period is a period of time, defined with an ending date, in which you post inventory transactions. The inventory periods can be opened or closed to limit posting within a defined period of time. Inventory periods align with accounting periods; however, they are not strictly integrated with accounting periods in any way that imposes entry dependencies between the two. When you close an inventory period, no value changes can be posted within the closed period. This includes new value postings, expected or invoiced postings, changes to existing values, and cost adjustments. You can, however, still apply to an open item ledger entry that falls within the closed period. To make sure that all transaction entries in a closed period are final, these two conditions must be met before an inventory period can close: All outbound item ledger entries in the period must be closed (no negative inventory). All costs in the period must be adjusted. In addition, it is recommended that all costs within the period are posted to G/L. When you close an inventory period, the program creates an inventory period entry with the number of the last item register that falls within the inventory period, along with the time, date, and user code of the user closing the period. Using this information with the last item register for the preceding period, you can see what inventory transactions were posted within the inventory period. NOTE: If a closed period contains open item ledger entries that relate to inbound quantities that have not yet been applied to outbound transactions, you can still apply outbound quantities to these entries despite the period being closed. It is also possible to reopen inventory periods if posting within a closed period becomes necessary, for example, if you need to post a late purchase invoice into a past inventory period. The program creates an inventory period entry when you reopen a period. There may be situations when the costs originally posted to the general ledger might change due to, for example, additional costs posted after closing the accounting period. To handle such situations, the program provides the possibility to post cost adjustments (recognized after closing the accounting period) into an open accounting period without reopening a closed period. It is important to remember that balances in the inventory and general ledger are only guaranteed to be equal at the point in time when the reconciliation is performed. The same principle applies when you run the Post Inventory Cost to G/L batch job to post inventory costs for accounting periods that are already closed.Page 20
  7. 7. Chapter 2: Inventory Costing PrinciplesTest Your Knowledge 1. What are the two ways you can post inventory cost to the general ledger? 2. In which entries does the program record inventory quantity changes? In which entries does the program record inventory value changes? 3. True or False: The program uses the information in the item ledger entries to post inventory cost to the general ledger. 4. What are the two mandatory conditions for closing an inventory period? Page 21
  8. 8. Inventory Costing in Microsoft Dynamics NAV 2009Quick Interaction: Lessons Learned Take a moment to write down three Key Points you have learned from this chapter: 1. 2. 3.Page 22
  9. 9. Chapter 2: Inventory Costing PrinciplesSolutions Test Your Knowledge 1. What are the two ways you can post inventory cost to the general ledger? MODEL ANSWER: You can post inventory cost to the general ledger by either running the Post Inventory Cost to G/L batch job or by activating the automatic cost posting option in the inventory setup. 2. In which entries does the program record inventory quantity changes? In which entries does the program record inventory value changes? MODEL ANSWER: You can post inventory cost to the general ledger by either running the Post Inventory Cost to G/L batch job or by activating the automatic cost posting option in the inventory setup. 3. True or False: The program uses the information in the item ledger entries to post inventory cost to the general ledger. MODEL ANSWER: You can post inventory cost to the general ledger by either running the Post Inventory Cost to G/L batch job or by activating the automatic cost posting option in the inventory setup. 4. What are the two mandatory conditions for closing an inventory period? MODEL ANSWER: The two mandatory conditions for closing an inventory period are: All outbound item ledger entries in the period must be closed (no negative inventory). All costs in the period must be adjusted. Page 23

×