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Item Charge Handling : How to manage without an additional Vendor Invoice

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Posted on by Riyas Bhai

Hi There,

The company is a trading entity, mainly dealing with imports.

They are currently using GreatPlains.

The question is about the Landed Cost (in Business Central - Item Charges)

In GP, when they create a Purchase order or product receipt, they have an option to book the Landed Cost against that receipt.

Since the user does not know the exact amount of landed cost at the time of product receipt, they normally go with an estimated landed cost for the receipt

During the product receipt, they will apply the "Estimated" Landed cost to the lines and post the receipt.

PO Value - Sr, 1000
Estimated Landed Cost - 200

This will create the following entries in the GL

Inventory - Dr. 1000
Vendor Payable - Cr. 1000

Inventory - Dr. 200
Accrued Landed Cost - Cr. 200

The accrued landed cost is a Balance Sheet account.
Once they receive the original invoice from the Landed Cost vendor, they will offset the invoice amount to the above Accrued Landed Cost account.

In the year end, they can monitor this account to evaluate whether the estimations are ok or not

So, the question is - How to handle this in BC

As far As I know :

In the Purchase Order:

The Item Charges (Landed cost) are handled by adding an additional line item in the PO with Line Type - Charge(Item) which will enable the "Item Charge Assignment" Screen and we can apply the item charges.

The same can be done through another purchase invoice entry also.

The problem is :

Option 1 - If we enter in the PO, the PO value will include the Item charge (which is not the case, because the Vendor is not the one handling this Landed Cost)

Option 2 - If we enter this as a separate vendor invoice, it will raise a payable liability to another vendor

What is the best way to handle the scenario as it is being done in GP

Our ultimate goal is :

1. The inventory cost should be increased with the Landed Cost
2. There should be a credit entry posted to a balance sheet account (Accrued liability)
3. There shouldn't be any other vendor invoices / vendors to be involved in this

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Inge M. Bruvik 1,035 Moderator on at

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RE: Item Charge Handling : How to manage without an additional Vendor Invoice

Riyas Bhai

Good point you bring up there with the indirect cost % could change from one vendor to another.

I just want you to know that you can manipulate the indirect cost % on the purchase order so even if the default from the item is set to 20%, you can change that on individual purchase orders.

As you seen in the example below i have made the indirect cost % filed visible on the purchase order line.It will default to what i have set on the item but i can change that on the purchase line and the system will post according to my override of the item default.

And then you can add to that through a customization that can allow you to predefined a percentage per. vendor.

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Riyas Bhai 10 on at

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RE: Item Charge Handling : How to manage without an additional Vendor Invoice

Hi,

I am thinking of a different approach. I know it is a long way, but it can get the result.

Step - 1

Create a dummy vendor called - Landed Cost Vendor

Setup the posting group in such a way that the Accounts Payable account is a separate account (not the actual Payables accounts used for vendor invoice posting)

Step - 2

After every product receipt is posted (or the Purchase invoice is posted), create a purchase invoice entry using the Dummy Vendor and the Item type as Charge(Item). Use the standard functionality for applying the required landed cost to the required line items and post the invoice

Step - 3

This will raise another issue, in the Vendor Balance, we will have the above invoice remain open.

In order to close this invoice, we have to create a Vendor payment journal using the Accrued Landed Cost account as the GL Posting account. This will create a credit balance in the Accrued Landed Cost account and also close the invoice

I know its not ideal, but that's all what I can think of at the moment

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Riyas Bhai 10 on at

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RE: Item Charge Handling : How to manage without an additional Vendor Invoice

Hi Inge,

Thanks for the valuable insight on the indirect cost field, Yes, it might be a way to go if there are no other options.

Here, the issue is when the same item is bought locally (where there is literally NO Landing Cost)

In that case also, the system will add the indirect cost % to the purchase cost.

After a period of time, there is a chance that the inventory value might be highly inflated.

I am really skeptical about the solution, however, I will run it through the finance team to check the impact.

Thanks a million for the suggestion, though

Your blog post is really amazing, appreciate the effort

Regards,

Riyas

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Inge M. Bruvik 1,035 Moderator on at

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RE: Item Charge Handling : How to manage without an additional Vendor Invoice

I used your question as inspiration for a new blog post around the issue of indirect item costing in Business Central.

bc365.co/.../

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Inge M. Bruvik 1,035 Moderator on at

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RE: Item Charge Handling : How to manage without an additional Vendor Invoice

If you can estimate the landed cost as a percentage of the direct cost i think you can pretty much use the standard system for this.

On the item card you can define an indirect cost. %

When you post a purchase invoice for the item the indirect cost will be added and posted to separate G/L accounts defines in the general posting setup.

The overhead applied account is used for that. And you can define that as you balance / liability accunt that you reconcile the actual landed cost invoices against.

Sample of the G/L Entries that will be posted.

If i understood your requirements correctly i think that pretty much would solve your business case.

(Don't mind the account no. i have used they probably does not make sense, i just put them there as examples).

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