I have a purchase order that was done for a specific unit price. The inventory was received and the purchase order was closed. When the invoice was received the unit price was lower than the purchase order price.
Can you someone confirm how to change the unit price for the received inventory to match the corrected price reflected on the the invoice.
Thanks in advance for your help.
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Wow, 24 posts and everybody ALMOST got it correct.
Inventory costing cannot be explained in a few lines. I just spent 3 hours explaining it to one customer. And costing works differently for each type of valuation method. However, let me upset the cart by saying that the most important document in this process is not the receiving transaction nor the vendor's invoice but the PO itself. Get that wrong and lots of problems follow. Also, if you are not using standard cost, you will have problems balancing GL to inventory if you frequently sell out of items in inventory. And that is not a problem with GP, it is the nature of the valuation method.
I cover valuation methods in my book Inventory Control Techniques.
Wow Frank...you know quite a bit :).
Joanne...I am glad this worked out for you!
Ron
Hi Frank and Ron,
I created a PO in my test system. Received the items and it updated the current cost on the item card as per the PO cost. I then did an invoice with a different cost. The current cost on the item card was updated to reflect the revised costs per the invoice. It averaged it all out correctly.
My GL accounts appeared to update correctly. The inventory account was decreased or increased to reflect the change in price per the invoice and our offset account change correctly.
I am having our accounting person do it in the live system and am assuming it will work fine.
Frank- I would love the documentation. Any additional information I can get on how the system works would be great. I will email you. Thank you!!!!
I appreciate the help you both have given me.
Yes, I should have asked the valuation question from the beginning too, Ron :)
But now that we know, we can say that you should not have a PPV account because when using average costing, the system calculates no variances - increase transactions always revalue the inventory. Now, assuming you are on V9.0 or above, with average costing, even decrease transactions can cause a revaluation, depending on the timing of the transactions - but that's for another conversation because we get into a discussion of what Microsoft calls inflow layers (increase transactions,) as even average costing uses layers similar to FIFO and LIFO perpetual.
Getting back to your original question, you shouldn't have to do anything to revalue inventory under the average method. That should happen automatically. Your current cost will reflect the current Average, which is not necessarily the cost on the most recent receipt.
Does all this make sense Joanne or am I muddying the water even further?
BTW, if you'd like an exhaustive explanation of how GP values inventory, I have a document I can send you. Just send me an email at fhamelly@eastcoast-dynamics.com. It's a tough read but explains in excruciating detail how each of the valuation methods work.
Hi all, just a post to make sure I get emailed updates on this discussion. The 'Email Subscription' option wasn't at the top of the post.
Ian.
Joanne,
In all my examples above, I was using FIFO costing. I know that FIFO and LIFO act the same way as far a valuating inventory goes (with the obvious exception of the F and L), however, I think average costing may possibly be different. Maybe Frank can shed some light because I am not 100% sure. I am 100% sure that if you run the simulation in your test environment you will be safe! I hope that this hasn't messed you up any...I should have asked that at the beginning. My bad...
Ron
Joanne, what valuation method are you using for inventory? Do you have a purchase price variance account setup in COGS?
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