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The Inventory offset entry for an Inventory Adjustment entered in the transaction entry is the COGS . The consultant suggested to use another Inventory Asset Account . The debit & credit going to same inventory accounts didn't make sense. Does anyone have more information on the inventory offset account
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We setup a reason code with a balance sheet account. When we applied a transaction with that reason code, the distribution didn't switch to that account as offset account.
The incorrect part is related to the adjustment in, at which you used the COGS account when increasing your inventory balance. When receiving items from a vendor, the inventory account is debited, while the "AP" account is credited, then when a sales transaction is posted, the inventory is credited, and the COGS is debited. This ensures that you have a precise profit and loss analysis.
In your case, where those items originates from ? That's the question which will help you determine what account to consider on the Offset account as I explained earlier.
I will just elaborate , we found some inventory and added those items (100) through adjustment hitting a debit to Inventory and a credit to COGS. When I sold those items the COGS is debited and Inventory is credited . Now when I do a profit & loss analysis for this Item it shows 100% profit as no expense is hit (COGS has a debit & Credit) because of adding inventory through the adjustment. Is this the correct way to add inventory?
The explanation provided on the help file of Dynamics GP is thorough, it is mentioned above by babu. So basically, it indicates using a COGS account. Although, I believe that we should differentiate between the usual COGS account used for tracking the cost of items when recording a sales transaction for instance, and the cost account used on the adjustment transaction entry for reasons such as (damages, spoilage, hospitality, stock count variances ....etc), and I am totally with the suggestion you heard from the consultant.
The above has been automated through what's called "reason code", you can setup different reason codes with different inventory offset account. This means, when you record an increase/decrease adjustment, you choose the reason code to justify this adjustment, if you choose a "Damage" inventory offset account for instance, the inventory offset account will be something like Inventory Damage expenses.
Another example I have seen a manufacturing company which manufactures biscuit, they used to issue daily biscuits to for hospitality in the meeting rooms, these quantities are reduced by recording a decrease adjustment with a reason code (hospitality), and the inventory offset linked to this code was (hospitality expenses)
In summary, it is a very good idea to setup a specific inventory offset account depending on the reason code. Please be noted that the "reason code" is a new feature that was introduced in GP 2013.
Let us know if you have any further inquiries,
Hi,
Inventory offset us account used while posting transactions either increase or decrease the inventory. Please see below the detailed description of offset account.
Inventory Offset
Enter an account that the cost of an item, based on the valuation method you've selected, will be posted to when you enter a decrease adjustment. Typically, this will be a cost of goods sold account. This account will be used only when increase or decrease transactions are entered directly in Inventory Control. It is the offset amount for the Inventory account.
This account also will be used for variance transactions if you're using Inventory Control alone.
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