How Order Entry Affects Inventory In The General Ledger

Post date: Feb 02, 2012 9:3:21 PM

When an item is shipped on an order, and then invoiced, if it is an ACCRUED item (expensed items aren't part of real inventory and is expensed when they are purchased), it will appear in a new Inventory 'Shipment' batch when the 'IC Import Service Manager invoice batch' function is run.  When that shipment batch is then posted, it will result in 'Expense' ('Cost Of Goods Sold') and 'Inventory' (asset) GL transactions based on the following rules:

EXPENSE

The Expense account is determined by the Category on the particular line on the order.  Each category determines the 'income statement' ('P&L') accounts: the expense and the revenue.  The category can be changed manually on any line on the order at any time until it is invoiced, but when the line is originally added, it will default to the 'Default item category' which appears on the order header.  (Categories are set up in the 'Edit Categories (1069)' function in Inventory Control).

ASSET

The inventory asset account is determined by the 'Inventory GL Account' associated with the location*.  In the 'Edit Locations (1017)') function, each location is associated with an 'Inventory GL Account', which will always determine what inventory (asset) account is used when an item is shipped from a particular location.  If each inventory location has a separate GL asset account, then the total of the inventory value on hand at a location (shown in the 'IC Item Valuation Report (1071)') should equal the value in the corresponding GL Inventory (asset) account.

In the SMCP the Inventory GL is tied to the location, not the item.  This is the case for ANY inventory transaction, including shipments, returns (sales order credits), adjustments, and receipts.  In this way, the Inventory GL account should track exactly with the total item valuation (i.e., costs on hand) at each location.

* This has been the case since 11/2010, when the Inventory system was integrated into SMCP.  Before that, the program was integrated with ACCPAC Inventory Control, and the Inventory GL asset account used when shipping was determined by the (ACCPAC) IC CONTROL ACCOUNT SET associated with the item in ACCPAC.  Regardless of the location, shipping an item would debit an Inventory GL asset account set by the item's Control Account Set in ACCPAC Inventory.