Why Financial Updates Matter in Inventory Transactions: A FIFO Costing Case Stud

When managing inventory, the way costs are calculated—using methods like FIFO (First In, First Out), LIFO (Last In, First Out), or Weighted Average—plays a crucial role in ensuring accurate financial reporting. These methods hinge on two types of updates in inventory transactions:

sical Update: Tracks the movement of items in and out of inventory, such as receiving, shipping, or adjusting stock levels.

1. Financial Update: Captures the financial value of those movements, finalizing the actual cost in the accounting system.

Scenario:

• Item Setup: You created an item using the FIFO costing method.
• Transaction: You did an Inventory Adjustment, meaning you added stock to the inventory without purchasing it (e.g., manually adding 10 units of the item to the system).

Issue: No Voucher Generated for Packing Slip

You attempt to post a Sales Order Packing Slip, expecting the system to record a financial entry (voucher). Surprisingly, no voucher is generated. Why?

Root Cause

In FIFO, the system requires both a Physical Update and a Financial Update on inventory transactions to determine the cost of goods sold (COGS). Since the Inventory Adjustment only created a Physical Update, the system lacked the financial cost needed to calculate COGS.

Without a Financial Update, the system cannot generate a voucher for the Packing Slip.

Practical Example:

I am creating one Item V0001 which has a costing method as FIFO.

This item has no on-hand inventory.

I am adding 50 Qty for this item by posting an adjustment journal.

Here there is no financial voucher posted for the above adjustment.

Please note I have enabled all the options for posting packing slips into the ledger.

1.      Item model group – Post financial inventory.

2.      Post packing slip in a ledger in the Account Receivable parameter.

3.      Post packing slip in a ledger in Inventory management parameters.

I am creating a Sales order and posting a packing slip. Please note – I have mentioned the Unit price as 40.

After posting the packing slip – The voucher won’t be generated.

There is no line present in the 'Subledger journal entries not yet transferred' page as well.

Solution

To ensure financial updates:

• Use a Movement Journal instead of an Adjustment Journal. Specify the cost during the transaction.
• After posting, the inventory will be financially updated, and the Packing Slip voucher will be generated successfully.

Happy Learning!!