Revaluation Query

Dave_S

Hi,

I have a client who has a scrap location setup to post sales credit memo's. The stock is never returned and an item journal will be used to clear down the scrap location at end of day or weekly. The Cr. Memo's are entered with a zero unit cost so the inventory is value is not affected.

They have entered quite a few Credit Memo's forgetting to zero the cost, so i am attempting to zero the value of the scrap location. In a copy of their DB i have tried using an Revaluation Journal and this seems to do the trick. It has reduced the inventory value correctly, but it has increased the cost of goods sold. Im a bit confused as i thought the stock value woudl decrease without affecting the cost of goods sold as nothing has been sold, can someone tell me if this is correct or should i not be seeing this increase as the goods are being scrapped?

Thanks
Dave

Miklos_Hollender

Well the point of double-entry bookkeeping is that if you want to credit the stock value account it has to debit something... getting stuff scrapped is a cost, because turning valuable items into scrap is a net reduction of the company's wealth.

What it credits depends on the account set up in the General Posting Setup as Inventory Adjustment Account.

Simply use a General Journal to post the amount to some sort of a proper cost of scrapped goods account, and set that account up there.

To avoid the problem in the future, don't change the Location Code in the Sales Credit Memo Lines manually, use the column Return Reason Code instead, an in that list you can set up to use this Location automatically plus there is a "Inventory Value Zero" checkmark...

Dave_S

Hi Miklos,

Thanks for the reply, i am currently testing the Retrun Reason as suggested. I have spoken with an accountant and he has confirmed the postings are correct, i ended up confusing myself looking into the problem!

Regards
Dave