Hi we use Business central and our costing is FIFO. we resell subscription based items to customers that gets billed annually and some are billed monthly. We buy these items from vendor and we get billed monthly. As I post the purchase invoices for items we purchase, I expect the cost of material GL account to reflect the cost of items, however, it doesn't seem. I see the COGS account is specified for the gen. product posting group correctly along with purchase account. what am I missing here?
How did you setup your posting group? If the COGS account does not reflect the expected cost, what does it reflect? Have you validate the posting accounts against the inventory valuation report?
Thanks Erik let me run the inventory valuation report. Also since it’s FIFO do I need to run inventory revaluation similar in the case with AX?
were you on ax before and moved to business central? or have you personally had experience with both products?
Hi jake, no. I personally have experience with both the products.
I used the default posting groups - just for your reference.
Based on what you wrote let's walk thru all the transactions so you understand each Debit and Credit. Note that I am NOT turning on Expected Cost in my example. A discussion for another day. Now, you purchase subscription Items you are selling and yes, these Items require a Gen. Product Posting Group and Inventory Posting Group to define the G/L Accounts that will be posted too when transacted. Your picture shows the accounts and I will use the Account Numbers in my example.
I will create a Purchase Order for the Item Subscription. Below are all the entries and how they are derived:
I will create a Sales Order for the Item Subscription. Below are all the entries and how they are derived:
You noted that your are using the FIFO Costing Method or First-In-First-Out. First-in-First Out (FIFO) is a costing method that assumes that your oldest goods are sold first. Companies who need a low-maintenance inventory accounting system that will give them clear views of their actual costs at point of sale, but do not yet have the data to help establish standard costs, may find that FIFO costing is best for their business. I often see this method used in distribution companies where variance analysis is not as necessary. FIFO means that the items taken out stock for production or sales shipments will be taken out in the order of first received, first out and are costed with the actual cost of procurement for that FIFO layer (there are specific exceptions to this costing method if you are using lot or serial number tracking, but they are beyond the scope of this discussion). Using Dynamics BC FIFO, the balance sheet will reflect the actual procurement/production cost of items remaining in inventory.
I hope this all helps.
Thanks Steven. this is quite helpful. I looked at the entries for one of the posted sales invoice, it doesn't looks like the system reflects COGS entries (but when I try to preview posting for one of the item, it did show the GOGS entry). btw we don't create sales orders or purchase orders (invoices only)
Hi there, it looks like we have negative quantity for this item that could be in how we purchase and sell the item. For a given month, we sell the item to several customers based on how much they use it. just for example item a is sold to customer 1, 2 and 3 as $100, $500 and $1000 with 1 qty each (total 3 qty). However, we bulk purchase same from vendor for 1 qty at $1600 (rebates/commissions received quarterly and entered separately) so there is less qty purchased compared to item sold in a given month. is there a way to use some type of journal to purchase the item with correct quantity (we have two years worth of purchase entries need to be input). I looked at purchase journal but that doesn't seem to included item! Going forward, could we treat this item as non-inventory but how to reflect the cost of material purchased? we are not manufacturing or stocking this item.
Did you run Adjust Cost-Item Entries and post them? The process produces and adds the COGS entry you stated you are missing.
I kind of follow but was the quantity purchased incorrect? I am not following how I can purchase an Item with a Qty = 1 but sell this Item with more than a Qty of 1. Would it not be correct to Receive and Invoice the correct quantity, for Inventory, and update the Line Discount or add an Invoice Discount to reduce the Cost/Invoice.
You can create Items that are Non-Inventory, however, you will expense the Purchase of the Item. When you sell the Item you will not have matching COGS since this is not an Inventory Item.
I would recommend correcting the the PO when you receive and invoice and make the Quantity correct. You can also enter Purchase Credit Memos as Charge(Item) that impact the Received Item reducing the Unit Cost.
Hope this helps.