chart of account question

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Hi, I have a question regarding the Direct Cost Applied account and the COGS account in Business Central. Ideally, these should be set up as distinct accounts. Here’s the scenario:

The company purchases raw materials and produces finished products. When materials are purchased, Business Central posts to a Direct Cost Applied account (e.g., 50020). When materials are consumed in production, BC also posts to the 50020 same Direct Cost Applied account.

If the raw material is not sold, there is no need to fill out its COGS account.

The company buys finished goods from a third party, using a different Direct Cost Applied account (e.g., 50030). When these finished goods are sold, Business Central posts the cost to 50030.

Question:
Is it acceptable for the company to use the same G/L account (e.g., 50030) for both the Direct Cost Applied and the COGS accounts?

If not, what are the potential implications of doing so?

Thanks

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Dynamics 365 Business Central

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Jainam M. Kothari 16,342 Super User 2026 Season 1 on at

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Hello,

it is not recommended due to implications for financial clarity and reporting accuracy.

The Direct Cost Applied account is intended to capture the cost of goods as they are acquired or produced, while the COGS account reflects the cost of goods that have been sold.

Using the same account for both can obscure the distinction between inventory movement and actual sales, making it harder to analyze profitability, track inventory valuation, and comply with accounting standards.

It can also complicate audits and financial reviews, as it blurs the line between production/purchase costs and sales-related expenses.

For better transparency and control, it's advisable to maintain separate accounts for Direct Cost Applied and COGS.

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YUN ZHU 100,731 Super User 2026 Season 1 on at

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Hi, hope the following can give you some hints as well.

https://community.dynamics.com/forums/thread/details/?threadid=c416a39f-236f-4f61-9fd4-c1c8fb816204

https://valentincastravet.com/purchases-and-direct-cost-applied-accounts-in-dynamics-365-business-central/

https://learn.microsoft.com/en-us/dynamics365/business-central/design-details-accounts-in-the-general-ledger?wt.mc_id=DX-MVP-5004336

Thanks.

ZHU

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Mansi Soni 9,237 Super User 2026 Season 1 on at

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Hello,

Using the same G/L account for both Direct Cost Applied and COGS is not recommended in Business Central, as it blurs the distinction between inventory valuation and expense recognition. The Direct Cost Applied account is meant to hold costs during inventory transactions (like purchases or production), while the COGS account reflects the actual expense when inventory is sold. If both are the same, it becomes difficult to differentiate between cost accumulation and cost consumption, leading to misstated financials, confusing audit trails, and poor visibility into gross margin and inventory performance. Best practice is to keep them separate for accurate reporting and reconciliation.

https://valentincastravet.com/purchases-and-direct-cost-applied-accounts-in-dynamics-365-business-central
https://learn.microsoft.com/en-us/dynamics365/business-central/design-details-accounts-in-the-general-ledger

Hope this answer will help you!

Regards,
Mansi Soni

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Sohail Ahmed 11,175 Super User 2026 Season 1 on at

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Adding more details https://learn.microsoft.com/en-us/dynamics365/business-central/finance-chart-of-accounts

✅ Mark this answer as verified if it helps you.

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Andrés Arias 5,157 Super User 2026 Season 1 on at

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Hello,

It would not be advisable from an accounting and reporting point of view.

https://learn.microsoft.com/en-us/dynamics365/business-central/design-details-inventory-posting
https://learn.microsoft.com/en-us/dynamics365/business-central/design-details-accounts-in-the-general-ledger

I hope I can help.

Regards,

Andres

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