Inventory distribution

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Posted on by gedco

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when the sales invoice is posted to the General Ledger I noticed that sometimes the inventory amount (that is the automatic entry ) that credits the inventory account is at times not the same amount as when the inventory was first debited and sometimes netted with an automatic entry.

When the inventory is first recorded the entry is debit inventory and credit accrued liability then when the invoice for the payable is created it then debit the accrued liability and credit the accounts payable if there is a difference in rate the variance would adjust the inventory account.

The credit to the inventory is then netted off with the variance adjustment from the foreign exchange difference that arise from when the invoice to record the purchase of the inventory and not with the amount that it was debited first.

For example the inventory was debited with $500 and when the payable is created and adjustment of 50 was again debited to the inventory account, when the inventory is sold the 500+50 was credited to the inventory account. Why is this happening? the distribution treatment is not consistent as some time the inventory credit would be the same as the debit and then an automatic general journal entry would be created to reverse the foreign exchange difference from the inventory account.

Please help?

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Mahmoud Saadi 32,738 on at

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The primary concept related to purchasing is justified with the cost adjustment, apparently, your purchasing process is divided among two steps which are: receiving transaction entry and enter match invoice.

The receiving transaction entry gives the initial inventory cost for inventory cost layers, this cost is prone to be changed and tracked on the inventory level when the invoice is posted

In case there is a cost variance when posting the invoice, a cost adjustment document will be posted in order to adjust the cost of the inventory layers accordingly, and post a cost adjustment journal accordingly as well to keep the GL-IV tied to each other.

As for the sales transaction entry, the cost of goods sold is to be primarily dependent on the inventory valuation method of your items (FIFO , average costing ...etc). Have a look at inventory valuation method as follows; Inventory Valuation Methods

Your feedback is highly appreciated,

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gedco 475 on at

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Good day Mahmoud,

Thanks for your detailed response. The valuation method used for inventory is FIFO perpetual which is actual cost received in inventory and actual cost used when inventory is sold decreased or transfer. Also a serial/Lot system is used.

However, If this is the same cost used for when the inventory is sold why is there two different treatment with the inventory distribution? Example, Enter match invoice entry produce a debit to the inventory resulting from the exchange difference at the time of entry that I understand, also base on your answer "this cost is prone to change "and that happens sometimes not in all cases at the time when the inventory is sold in my case. Question, is it that the treatment for the way in which the inventory sold not treated the same way at all time? I understand that there will be different amounts when the inventory is split up with different customer/orders there will be different credit amount but shouldn't there be consistency?

In one transaction when enter match invoice is created the difference resulted from exchange rate, if it is a debit variance shouldn't it be treating all debit variances in the same way, but it is not. Case, sited in my initial question the transaction is debited with the variance and when the inventory is sold if net off 500+50 and in another debit variance transaction it would treat this same debit variance differently by crediting the inventory with the original 500 then days after the system creates a system generated general journal entry to reversed the variance adjustment ( of 50) created by enter match invoice and sometimes it does not only create one entry to credit the inventory it create a debit and a credit to offset the original debit variance. Shouldn't there be consistency in the way all debit or credit variances are treated? How can this be resolved or am I misunderstanding something here? and why does this system generated entry not crated on the same day that the transaction occurred? Technically it is not distorting the inventory balance overall if it happens within the same month but for fiscal periods this is creating a problem.

I thank you and look forward to your reply.

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Mahmoud Saadi 32,738 on at

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Thanks for the reply

I would like to have few details though, could you please provide me with the sequence of entering transactions into the system, are you entering Receiving then enter match then post your sales invoices ?

Or the sales invoice is posted before the enter match is posted ?

Your feedback is much appreciated,

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gedco 475 on at

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Good day Mahmoud,

Thanks for your continued support.

I believe we do Receiving then enter Match then sales invoice but there may be times when the sales invoice is done before the payables. Does it matter the order in which it is done?

I am in the process of preparing some screen shots as details for you, I will send it soon.

Thanks again for your support.

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Mahmoud Saadi 32,738 on at

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This case is quite interesting for me. I will be waiting for your screen shots in order for the discussion to be much more specific and details based.

Looking forward to hearing from you,

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gedco 475 on at

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Good day Mahmoud,

I am trying to send you the screen shots as promised but I am having problem with the file size. the system only allow to send 64 KB but my file sizes are 312 KB any suggestion on how to resize it?

Thanks

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Frank Hamelly | MVP... 46,625 Super User 2025 Season 2 on at

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Gedco, open the image file in Paint and use the 'Resize' tool. Save it and check the properties to verify it is 64kb or less.

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gedco 475 on at

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Good day Frank

Thank you resizing information. It worked.

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Frank Hamelly | MVP... 46,625 Super User 2025 Season 2 on at

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Happy to help!

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gedco 475 on at

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Good day Mahmoud,

As promised please see attached screen shots for detail examples of when the inventory credit was net off from the enter match entry and when it did not and also when the automatic entry produce two entries instead of one.

The posting dates were incorrect at times and have since changed to ensure that the receiving entry is done before the sales invoice and the enter match entry but I want to know why auto entries are done at different dates outside of when the transaction is created.

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