Costing

Get Involved. Join the Conversation.

Topic

    David Tott
    Need to understand correct accounting for internal...
    Topic posted November 8, 2019 by David Tott, tagged Cost Management, Fusion 
    22 Views, 2 Comments
    Title:
    Need to understand correct accounting for internal requisitions of inventory expense items
    Summary:
    Need to understand the correct accounting for internal requisitions of inventory expense items
    Content:

    I’m wondering if you can help give me some guidance for my current client. I’m in the process of setting up cost accounting, but can’t find guidance on what the correct setups should be for the following scenarios. Can anyone help?

    Overall scenario

    We are implementing Inventory Management and Cost Management (Cloud R19D). The client wants to be able to stock purchased items for employees to request via an internal requisition through Self Service Procurement.

    In this scenario, the client wants both Inventory Asset and Inventory Expense items to be available through this channel, so cost accounting is needed for both.

    The setup on the Item specifications is as follows:

    Inventory Asset Items:

    • Manufacturing
      • Costing Enabled = Yes
      • Inventory Asset Value = Yes
    • Inventory
      • Inventory Item = Yes
      • Stocked = Yes
    • Sales and Order Management
      • Internally Transferable = Yes
      • Transfer Orders Enabled = Yes
    • Purchasing
      • Purchased = Yes
      • Purchasable = Yes

    Inventory Expense Items:

    • Manufacturing
      • Costing Enabled = Yes
      • Inventory Asset Value = No
    • Inventory
      • Inventory Item = Yes
      • Stocked = Yes
    • Sales and Order Management
      • Internally Transferable = Yes
      • Transfer Orders Enabled = Yes
    • Purchasing
      • Purchased = Yes
      • Purchasable = Yes

    All items will be held in asset subinventories. The only difference is the Inventory Asset Value Flag. As I understand it, this determines if the value of the inventory appears on the balance sheet or not.

    Problem Statement

    The client wants the employee requesting the material to be charged for it, regardless of whether the item is an inventory expense or an inventory asset. This avoids the need for period-end allocations to distribute the central cost incurred out to the consuming cost centres.

    For the Inventory Asset scenario, I am comfortable with the high level (simplified) accounting flow:

    1. At Purchase: DR Inventory CR Accounts Payable
    2. At Internal Order: DR Expense CR Inventory (moving cost from balance sheet to P&L)

    However, for the Inventory Expense scenario, I’m not sure what accounting is suitable to recharge the initial cost of the item to the consuming cost centre when the internal requisition is fulfilled:

    1. At Purchase: DR Expense CR Accounts Payable
    2. At Internal Order: ??????

    Any help / pointers greatly appreciated!

    Version:
    19D

    Comment

     

    • Krishna Ghantasala

      Yes for the Expense destination flows, the high level accounting would be Debit Expense and Credit Expense (moving the cost from a consolidated account to individual account).

       

       

          

       

      • David Tott

        Hi Krishna,

        Many thanks for this - I'll work through both scenarios with my client using the accounting you've recommended.

        Kind regards,

        David