Inventory Posting

Madiya

Hi

When processing a Purchase invoice for stock items this is the effect on the G/L:

Credit Direct Cost Applied
Debit Inventory Account
Credit Vendor
Debit Purchase Account

My question is what is the purpose of crediting Direct Cost Applied and Debiting the Purchase Account. How would you explain that posting to someone, why does it have to be there?

Your help will be highly appreciated in this regard.

ssingla

Traditionally Financial and Costing records were seprately maintained. In the ERP scenario both are merged. Therefore the way transactions are done is different.
With a purchase transaction the following entry should be created :
Inventoy Account ...... Debit
Vedor Account ...........Credit.

There are different occasions where both the accounts should be posted such as Inventory account should be debited when there is receipt of goods and vendor account should be credited when the purchase invoice is booked in the system. Receipt and invoicing can occur at different times therefore the system has created two transactions:
Receipt : Inventory Account ...Debit
Direct Cost Applied..Credit

Invoice: Purchase Account.....Debit
Vendor Account .....Credit
Purchase and Direct Cost Applied account are Income Statement accounts and gets nullified. When ever the goods are sold that is debited in COGS account which is the net consumption for which the exp is booked for that year/transaction/period.

Madiya

which leg is the costing leg and which one is the financial leg

ssingla

Reciept is Costing which is directly related with Inventory Posting Group.
Invoice which is related to Customer Posting Group & is Financial.