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How to record COGM

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Posted on by Jefry Then

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Hi all,

How do we record COGM in AX 2012 R3?

If COGS, we can set it in posting profile for item consumption, but how do we do for COGM?

In production order we have WIP and any absorption which rolled up into our finish goods, but once again, how do we record COGM?

Thanks.

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Ludwig Reinhard Microsoft Employee on at

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RE: [AX 2012 R3] COGM in AX

Hi Jefry,

There are a number of ways how you can setup the inventory posting profile to get transactions recorded on COGM P&L-accounts.

If you could specify the vouchers that you expect during the different production phases we might be able to help you setting up your posting profile in a way to get those transactions posted.

Please note that you have to clarify first whether you are allowed to generate "costs" when producing items as the accounting/tax rules in your country might specify that those costs might only hit your P&L once your products are sold.

Best regards,

Ludwig

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Jefry Then 1,982 on at

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RE: How to record COGM

Hi Ludwig,

Thanks for your reply.

Currently I'm using contoso posting profiles. Here I post my production order's vouchers.

Pardon me but could you explain me about generate "costs" when producing items? I'm not quite sure about this.

Thanks.

Jefry

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Ludwig Reinhard Microsoft Employee on at

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RE: How to record COGM

Hi Jefry,

If you are working in standard contoso you need to change the production posting profile a bit to generate postings. I have not checked each an every line that you posted but the principle is simple.

You have a finished product posted on account 160200 with a total of 400334.40$. This is your starting debit transaction. Then you have a raw material issue posting on account 140100 for 360000$. The "trick" is now to modify your posting profiles in a way that all things that make up your finished product (material, Labor, ...) are posted not against a WIP account but against a COGM-P&L account.

Just have a look the following simplified example, where I produce a product for 400$

DEBIT1: Finished Product 400$ (BS)

CREDIT1: Offset account -400$ (?!)

Lets assume that this finished product includes 300$ material cost and 100$ Labor cost. Then you need two additional transactions on P&L accounts.

DEBIT2: COGM-material 300$ (P&L)

CREDIT2: Inventory raw material issue - 300$ (P&L)

DEBIT3: COGM-Labor 100$ (P&L)

CREDIT3: Absorbed Labor cost -100$ (P&L)

Some of the Contoso WIP account setups need to be replaced by P&L accounts that hold your COGM. You will need to test this a bit around but I am quite sure that you will make it.

Regarding the note on "costs" created ... let's try looking at the whole thing like this; you produce a finished product and increase your wealth by putting a finished product into your BS. Now the question is what offset account to use for that. In my example above, what type of account do you need to use for the sffset account that I used in the CREDIT1 transaction? Is it a BS or a P&L account? If you use a P&L account you increase your profit as the transaction is recorded on the credit side. If you use a BS account there is no influence on your profit as you just shift things around in the BS. The Thing you need to clarify with your auditors/accountants is what account type you need to use here.

Hope those explanations help clarifying things at least a bit and did not confuse you :-)

In general you need to do a lot of testing when you setup production posting as many areas (ressources, materials, indirect costs...) are affected.

All the best,

Ludwig

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Jefry Then 1,982 on at

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RE: How to record COGM

Hi Ludwig,

So if I understand you correctly, I should replace all WIP (BS) accounts into COGM (P&L) accounts.

Many thanks for your clear explanation. I will test my posting profile now.

Best regards,

Jefry

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