Purpose of Direct Cost Applied Account

Beatrice

Hi,

I understand that when posting a purchase invoice after having previously posted the purchase receipt, the system will post the following entries:

DR Invt. Accrual Interim Account
CR Interim Stock Account

DR Stock Account
CR Direct Cost Applied Account

DR Purchase Account
DR VAT Account
CR Vendor Account

Can someone please give a brief explanation of the purpose of using the Direct Cost Applied Account on the General Posting Setup window?

Thanks and Regards,
Beatrice.

ssingla

The account is used to integrate costing books with the financial books.
The actual entry that needs to be passed for a purchase transaction is

Stock Account Dr
Vendor Cr.

Purchase account which is normally a expenditure in accounting terms should not be booked as we have not incurred any expense. The stock has been bought and the liability of vendor is created.

Further the purchase transaction is divided in 2 parts. First the receipt and then booking the vendor's invoice. Your second entry represents the receipt and booking of stock and vendor invoice is reprsented in your third transaction.

As there is no expense, no charge on the profit and loss account (Income statement) should be created, so to reverse the impact of debit entry of purchase, Direct Cost Applied account is used.

Theoritically DCA is for application of cost towards the creation of asset i.e. stock of the company. I guess the account is also used for loading overhead charges of manufacturing to stock.