Purchase Order Charges Accounting in Microsoft Dynamics 365 Finance and Operations

In this blog, we will talk about purchase order charges, how these charges can be accounted in different scenarios. Many times, we are not sure how we can manage different scenarios and account the charge value. In this blog we will see different ways of accounting charge value.

So, lets first understand how charges can be allocated to purchase order.

Add and Allocate charges to Purchase order/Purchase Invoice:

This process will explain how you can add and allocate charges to purchase order lines/ invoice lines.

Step-1: Add Charges

Navigate to, Purchase order > Select Purchase order > Purchase tab on Action Pane > Maintain charges

Step-2: Allocate Charges

Navigate to, Purchase order > Select Purchase order > Purchase tab on Action Pane > Allocate charges

Now, let us explore different scenario of charges accounting:

1. Same Vendor and Expense

This is the case when same vendor is adding some additional charges in PO invoice and customer wants to account those charges as “Expense”. So, after applying charges to the invoice accounting entry should be:

Vendor Credit

               Expense (Freight) Debit

Setup:

Transaction:

Follow Add charges process on Purchase order or while creating Purchase invoice and allocate to Lines.

2. Same Vendor and Load Charges on Inventory

This is the case when same vendor is adding some additional charges in PO invoice and customer wants to add that cost to Product cost/Inventory cost. So, after applying charges to the invoice accounting entry should be:

Vendor Credit

               Inventory-Item Debit

Setup:

Transaction:

Follow Add charges process on Purchase order or while creating Purchase invoice and allocate to Lines.

3. Third Party Vendor and Load Charges on Inventory

This is the case when same vendor is adding some additional charges in PO invoice and customer wants to add that cost to Product cost/Inventory cost. So, this should be done in two steps, Step-1 Add charges cost to inventory and Step-2 account third party vendor invoice.

Step-1:

Interim Main Account Credit

                             Inventory-Item Debit

Setup:

Transaction:

Follow Add charges process on Purchase order or while creating Purchase invoice and allocate to Lines.

Step-2:

Transaction:

Post third party invoice using Invoice journal with following accounting entry:

Vendor Credit

             Interim Main Account Debit

Note: End of these two steps Interim account will be zero and third party will have its vendor balance, also cost will be added to product cost.

Note: You can follow these steps in any of the sequence.

Note: Interim Account balance will also help in reporting about third party charges.

4. Apply Charges after Purchase order Invoice Posting

Navigate to, Accounts Payable > Inquiries and Reports > Invoices > Select Invoice > Charges > Charges adjustment

That is, it, for this blog. Hope this will help you to define charges for your customer’s business process.

Thank You!!! Keep reading sharing.