how to settle Sales order for raw material with Purchase order of finished goods.

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hi all,

please let me know how to settle Sales order for raw material with Purchase order of finished goods having same vendor and customer. following is the scenario (requirement) which is to be followed:

1. Create a sales order for the raw material that is being transferred to the suppliers.

2. Create a purchase order for the finished goods that is to be received from the supplier.

3. Receive finished goods.

4. Settle sales and purchases through Journal Voucher.

recommend me all possible outcomes.



All Replies
  • I'm curious why you're selling the supplier the raw material only to purchase back what I assume is the finished good manufactured from those very same raw materials.  Obviously you could do both operations via purchase order, and then settlement is not an issue at all.  Can you provide more details on the scenario?

  • hi,

    usually in our region we sell raw materials to get purchase finished goods from that party because industries normally avoid production/ processing of raw material. and if we can do this from purchase order then do let me know that option. however now you will better understand my requirement.

  • This scenario is better handled with sub-contracting feature in production. Addressing it through SO and PO would create unnecessary Tax implications and profit and loss scenarios.


    Will you please explain what you are saying so that i will test this feature on my scenario. waiting for your response.



  • Hi Yumna,

    I am not in touch with Production module but I can guide you.

    This is one of the manufacturing sub-contracting scenario wherein, manufacturing is outsourced  to Vendor and Raw material is supplied by the manufacturer. To use this feature, Production module's sub-contracting features would need to be used. I would recommend you to explore sub-contracting features for production.

    Using this, you will transfer the raw material to vendor location and receive back the finish goods. Vendor will get paid only for the services provided. Main advantage of using this is that you can avoid interim profits/losses and related taxation issues. Unless you really want to do it as a Trading business. You can post another thread if you had doubts on sub-contracting and production experts will come to your help.



  • hi Dwij,

    now i am exploring subcontracting feature in production but please confirm me one thing will it help me to settle the payment to vendor? as it is not creating any sales order or purchase order? however we will be receiving invoices in case of finished goods therefore will also be issuing invoices for raw material.

    please let me know :)



  • Yes, It should create Purchase Order - for the service item. No invoice will be for raw material or finished goods as vendor is essentially doing operations on the raw materials and converting it into finished goods and sending back to manufacturer. So service tax will apply to the vendor instead of Sales tax / VAT depending on taxation of the region.

    Having said that, I am not sure how 2012 handles sub-contracting as last I used it was in 4.0.

  • Thanks!!

    will let you know soon.