Expected Cost Posting and Overhead

DarkSide

I'm working with Nav5.0 but this may apply to all versions that support expected cost posting, I'm not sure.

If you post a receipt of an item with a unit purchase price from the vendor for 1.00 and you have .05 of overhead you would expect that inventory would be debited by 1.05, accrued accounts payable credited 1.00 and overhead applied credited .05.

Nope. :evil:

Navision debits the inventory by 1.05 and accrued accounts payable by 1.05. Thus overstating accounts payable and understating income. The correct entries are posted when the purchase order is invoiced. Which could be a week or more later.

Now, I would consider this to be a bug because it's not in accordance with GAAP. At least not the GAAP I'm familiar with. Not to mention it flies in the face of common sense. But the chances of Microsloth doing anything about are slim to none.

So, anyone have to deal with this or have any suggestions?

Thanks.

Arhontis

Hello Darkside,
(the above line is a good start of a book of a madman that tries to talk to his subconscious... lol)

Anyway, I don't seem to understand something about your case...

AFAIK Purchase Receipts do only item ledger and value entry and with the total cost that the user has entered as expected in the value entries.

When the invoice comes, then the invoice do vendor ledger entry, G/L, item ledger entry and value entries. The value entries get the same value entry amount as the return receipt had and it reverses, so that you get zero expected and posts the correct value as actual.

I have seen this functionality in GR version throughout 3.70.A -> 4.0SP3

In case I don't understand or you mean something else, can you please clarify it?

ara3n

I agree with Arhontis

When you receive Goods with expected cost Navision
Debits Inventory Account (Interim) 1.05
Credits Invt. Accrual Acc. (Interim) -1.05

When You invoice the goods with expected cost Navision
Credits Inventory Account (Interim) -1.05
Debits Invt. Accrual Acc. (Interim) 1.05
Debits Inventory Account 1
Credits Direct Cost Applied Account -1
Debits Inventory Account .05
Credits Overhead Applied Account -.05
Debits Purch. Account 1
Credits Payables Account -1

idiot

ara3n wrote:

I agree with Arhontis

When you receive Goods with expected cost Navision
Debits Inventory Account (Interim) 1.05
Credits Invt. Accrual Acc. (Interim) -1.05

When You invoice the goods with expected cost Navision
Credits Inventory Account (Interim) -1.05
Debits Invt. Accrual Acc. (Interim) 1.05
Debits Inventory Account 1
Credits Direct Cost Applied Account -1
Debits Inventory Account .05
Credits Overhead Applied Account -.05
Credits Purch. Account 1
Debits Payables Account -1

Shouldn't the last 2 entries be
Debits Purch. Account 1
Credits Payables Account -1
?

ara3n

For AP Debit is Negative. Credit is Positive.

Here is a link with signs

http://www.quickmba.com/accounting/fin/debits-credits/

idiot

Agree
so when you do purchase your AP should increase so credit Payables?

ara3n

Nope, the sign is negative.

Go to a Purchase Invoice. Click navigate and look at the GL entries. You'll see the amount Negative.

idiot

Let's go back to basic accounting & not worry about the sign or amounts or Navision
When credit purchases are made
Debit Inventory (perpetual system)
Credit Accounts Payable

Do you agree?

ara3n

Yes, it should be the reverse.

I've updated my post.

DarkSide

Arhontis wrote:

When the invoice comes, then the invoice do vendor ledger entry, G/L, item ledger entry and value entries. The value entries get the same value entry amount as the return receipt had and it reverses, so that you get zero expected and posts the correct value as actual.

The issue is the "invoice" posting and the timing of this. So let's say you're a company that has a 10 to 15% overhead rate with COGS of around $1,000,000 weekly. If you have an average of 1 week of receipts as "received but not invoiced" at the end of an accounting period you're going to have roughly $100,000 to $150,000 of absorbed overhead in accounts payable and not in your income statement.

That's bad.

I want proper accounting - which would show my absorbed overhead in overhead applied when the goods are received not when they're invoiced.

I think this is less of an issue for many companies that don't have overhead rates so high. It's not as big of an impact.