At present if you use average cost and use the following example.
PO for item 123 @ 10 per item. You order 10 items at a total po cost of $100
This PO is receipted - goods go into stock at total value $100. Lets assume that there was none in stock before hand and there was no cost in there as well.
Lets assume that this item is sold in inventory for $20
So if 5 of these items get sold then you get the following accounting entries
DR COGS 50
CR Revenue 100
Now lets put the PO invoice in, at a cost of $150
so now we get a DR to Inventory for this item for an additional $50This gets applied to the 5 items that remain in stock. So we get a QTY of 5 on hand and a cost of $100
Now when these items are sold you get the following accounting entries
DR COGS 100
CR Revenue 100
Yes I know that this averages out over time, however it is very easy to end up with items when they are sold that the COGs exceeds the revenue.
It would be great to have a routine were we can go and historically update the item cost on sold transactions so that all of your IC history actually looks correct.
This would also stop the problem where you end up with cost in IC but no transactions from additional costs or changes in PO Invoice to PO Receipt Cost that have ended up in IC when you do not have any items left in there to apply the cost to. An option here might be to put this straight to COGS instead of letting it sit in IC for ever?
by: Kerry J. | over a year ago | Operations Management
Comments
I agree - it would need to be limited to unlocked periods.