Dynamics 365 Business Central: Item Costing, part 4

Dynamics 365 Business Central: Item Costing, part 4

Hey everyone!

I know it's April, and we should have the April update from Microsoft Business Central. 

I've actually been playing around with the updates and next video we're going to get into those. 

This video we're going to keep going on the Item Costing though, so if you're not into costing or you don't like costing, and you just want to follow the inventory, you're going to fully shut off this video.

If you love costing, here we go. What we're going to talk about today is something called expected cost. It's a nice feature within business central.

Basically, what’s expected cost?

If you have a PO, purchase order, and we're going to be buying the spring coffee mug. Let's say we have a hundred at $5 ,so $500 total. When we are in the PO and we actually receive, not invoice.

We receive, not invoice. What does that do? 

As we looked into it before, when we receive, not invoice, nothing happens on the GL. We get an item ledger entry, so the inventory comes in, but the GL is black, empty, nothing.

But there is a way to have the GL record something. There is a checkbox for expected cost posting. It's in the inventory setup and I'll show you that in the application.

If you check that off when you do receive, not invoice, you get GL postings. So you have to set those up as well. You know, where in the GL things are going to post, and I'm going to show you that. Basically, what happens is that this 500, if you receive that, hits an inventory account which is interim, like so.

Then it hits an accrual account for inventory. There's $500 that books on the asset for interim inventory and then accrual for $500, books on the liability side. Then when you actually invoice, these washout. This is receive, not invoice.

Now let's say that's task number one and then when you invoice let's say number two.

So this is number one. This is number one. Number two is invoice. Then what happens is, 500 gets posted here, so that's 2. 500 here, two.

Then it books like before, which is on the inventory account 500, that's number 2. Then on the AP, 500, which is number 2. Then it posts also on the direct cost and purchases.

I'm going to skip those for now, but so it actually washes out these accounts. In the beginning it puts in these accounts as an accrual and then we actually invoice, it flushes them out.

An interesting aspect to this is, of course, what if you receive it, not invoice it and then you possibly sell it. If you actually get the inventory in, it gets accrued for, and then you go ahead and you get a cost of goods sold. I might want to cover that in the next video but that's kind of taking the whole accrual piece all the way up to chain.

That works, but it's the next video right? Hopefully next video! Although tomorrow we're going to go into the April updates. Then we'll get back into inventory costing. Until next time, take a look.

Okay so let's take a look at how that works in the system

If I go into inventory hosting group or posting setup, I added an inventory account for the interim inventory account. We have the standard inventory account and then we have the inventory account interim. This is where the expected costs posts.

Let's take a look at how that’s set up. It's for the main location, so if I go into inventory setup, I can actually go ahead and check off expected cost posting. I have to go to show more and click on that. Then it does this. I just say yes, ok, so that's fine now.

I'm going to go into a purchase order and we're going to work with our item that we usually work with, which is the spring coffee mug. We'll buy from Fabrikam and get into the spring coffee mug, into the main location. We're going to get 500.

Now I'm just going to receive, just receive. Let's actually put the posting date to be today, which is April 3rd, like that.

Ok so now I'm going to go ahead and hit actions, post, post, and just receive, not invoice.

We're just receiving this. Before, if you remembered, it didn't post any GL entry, but I'm hoping now, with this setup, it'll actually post the expected cost.

It goes over here and tells me there's something wrong with the inventory accrual account interim, so let me just go ahead and fix that. General posting setup, there we go.

We have domestic, no tax, and we need to specify the interim account that's probably all the way over here, so we have no tax domestic, and start cost over half variance.

Let's see if it's missing. Here it is, okay so it's not made visible by Microsoft. Thank You Microsoft!

We'll just put both of these here because they might both need to be used. It’s inventory accrual account interim, and cost of goods sold account interim. I might just go ahead and put that to the same account as I had before. We did add the expected cost and the cost of goods sold account.

Actually, I want to create a new one for that, so let's create expected cost of goods sold. I have a feeling that when we start posting through this, if we actually post cost of goods sold for something that expected it, but has not been realized yet, that might be hitting that account. It would be fun to explore that a little bit later.

We are going to create 50105 COGS interim, and use that one. Back out, just hit OK.

I'll create an extra account for this, 10705, so we can see how this all posts.

There we go, everybody has a separate account, very good. It's one over 10705 inventory accrual account interim. COGS account interim is 50105.

Now let's post our receipt. We're in here and we go ahead and hit actions, posting, post, receive. Now it receives. What we want to do now, so this is 4/3 right that's the date.

We go into chart of accounts and take a look at what posted. What I want to do is filter the totals by date filter. 4/3/19, only 4/3. 

Let's take a look at what happened. We have the expected cost of 2,750 hitting here. This would be the inventory increase. Normally when you receive, not invoice, nothing happens here. In this case we actually do get a posting. We get 2,750.

Now we don't have a liability to the vendor yet because we haven't posted the invoice. The offset is actually going to be here at the interim inventory accrual account, right here. You can see the split.

You might want to put this in interim inventory accrual account on the liability side. I guess that would make sense. I just put them right next to each other here. Then if we go a little bit further down, we see that we don't have any COGS interim yet, but I'm suspecting that we might get a COGS interim once we sell this. Because it's really not fully realized, since the cost is in here, if it gets sold, this particular item, rather than hitting COGS straight, it might hit COGS interim.

That would be something we can take a look at in the next video. Here at least you see the split unexpected cost and inventory interim.