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Dynamics 365 Community / Forums / Finance | Project Operations, Human Resources, ... / Inventory closing
Finance | Project Operations, Human Resources, ...
Answered

Inventory closing

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Posted on by oldman.logan 565

My company has never done an inventory recalculation or closing since 2009 or so, on our system AX 2009.  

We attempted an inventory recalculation in the test machine. There's a difference in the inventory values as per our balance sheet but not a very significant one. 

However, the cost price of about 200 items out of the 5000 we have has changed, some by small margins and some by large margins. 

While attempting inventory closing as of 31-12-2019, we noticed that some items went out of stock and price changes from the recalculation is there. 

I understand that trying to close inventory after so long could have unpredictable outcomes. Is there a way around it to bring the correct cost prices and successfully close inventory without errors. 

Any advice would be preferable. Thanks! 

I have the same question (0)
  • Ludwig Reinhard Profile Picture
    Ludwig Reinhard Microsoft Employee on at

    Hello iron.apologist,

    What is the inventory valuation method that your company uses or is supposed to use?

    (FIFO, weighted average, etc.)

    Best regards,

    Ludwig

  • oldman.logan Profile Picture
    oldman.logan 565 on at

    We are using weighted average, Dr. Ludwig. Thanks for your reply.

  • Suggested answer
    Ludwig Reinhard Profile Picture
    Ludwig Reinhard Microsoft Employee on at

    Many thanks for the update.

    If you never closed inventory then AX uses what is internally called 'current running average cost price', which is very similar to a weighted average valuation; not exactly but very similar.

    Why I am saying that?

    Well, if you did not close inventory for the last 10 years and want to start doing it now then you will see some adjustments that are probably difficult to explain. I think you might not be able to explain most of the adjustments posted.

    At the same time, you mentioned that the adjustments that you saw in your test system are not significant.

    Before doing all the work related to the inventory close I would thus recommend talking to your auditors and explain them the issue. They might be totally fine with the costing that is used (current running average cost price) especially if you have non significant adjustments identified in your test environment.  

    This assumes of course that there are no performance or other issues due to the missing inventory closures.

    I also assume that you upgrade to a newer version soon where you process inventory closures.

    Overall, before you make yourself a lot of work and assuming that you upgrade to a newer version soon anyway, have a chat with the accountants and auditors whether the inventory close effort makes sense.

    Best regards,

    Ludwig

  • oldman.logan Profile Picture
    oldman.logan 565 on at

    Thanks for the detailed reply Dr. May I ask how will upgrading to a new version help fix the issues? We also have the problem that the inventory value hasn't changed much, the cost of the items have changed and it will be misleading for our sales staff. This case is prevalent for about 200 items.

  • Suggested answer
    Ludwig Reinhard Profile Picture
    Ludwig Reinhard Microsoft Employee on at

    Hi,

    If you upgrade to a new version, you will have to do create a financial close (balance sheet and income statement) in your old system that will be checked and audited by your auditors.

    When doing that they regularly double check the appropriateness of the inventory values and will specify what values they want to see. In other words, you will start - e.g. in D365FO - with new / fresh audited inventory values that you have to take into account. Thereby, the issue that you currently have gets resolved by itself.

    The assumption is of course here that (a) the adjustments that you see in your test system are non significant from an accounting perspective and (b) that you upgrade to a new version in the near term.

    Best regards,

    Ludwig

  • oldman.logan Profile Picture
    oldman.logan 565 on at

    Thanks Dr. Ludwig for the reply. We perform financial period close every year in the system and that has been done till 2018 as of now. We have 2019 audit going on and once that is done, we will be closing the year 2019. It is the inventory closing that we have never done. I am looking at the possibility of doing an inventory recalculation / closing simply because that is the right thing to do and we want our costs to be calculated correctly. The total difference on the inventories in the balance sheet before and after inventory recalculation & closing are not very significant. Our only problem is the cost price is varying wildly over the 200 items that are becoming different. This may affect our sales.

  • Verified answer
    Ludwig Reinhard Profile Picture
    Ludwig Reinhard Microsoft Employee on at

    Good Morning iron.apologist,

    I can only give you my personal opinion from an accounting / finance and not a system point of view :-)

    I know that many people might not go along and share this opinion.

    What I wanted to express is

    (a) that you should be careful not creating some unnecessary work for your and your colleagues, and

    (b) that some of the fluctuations that will be recorded and posted might be large and give you a hard time explaining them for example to your CFO or your auditors.

    At the end of the day, this is all about 'valuation' and I learned from a lot of discussions with auditors that this is often not about the application of a mathematical concept or valuation method but rather about an assessment that is made.

    So, let's please wait for some other community member to provide some other insights / ideas.

    All the best,

    Ludwig

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