AX 2012 does WIP ledger account needs to be included in the GL for inventory reconciliation

Hi, the inventory value report shows discrepancy with GL and the balance in the WIP ledger account seem to bridge the gap. We have production orders that are not ended. All the picklist and RAF are offset by WIP account 1000. both Picklist and RAF receipt are posted to one inventory account 250000. only when production ended, that Production issue goes to 25000 and Production Receipt goes to FGI - 35000.

Right now, I am comparing inventory with sum of 25000+35000. I think the question is to double check if WIP account should be included. Appreciate your input.

we are not using ‘physical value’ or marking. we have POs that are not yet invoiced as well. We don’t use Labor or OVH.

also quick question. When Production Starts and RAF, physical update takes place and ledger account 25000 is posted offset by WIP - 1000. So inventory physical amount should reflect and match to the ledger accounts. correct?

From PO perspective, we have used one account for both product receipt and purchase inventory receipt. So purchase accruel (physical amount) and purchase expenditure for product (financial amount) will reflect the total Purchase inventory receipts. is that Correct?

appreciate your inputs.

It ultimately depends upon your process and setup. How you configure the posting groups to move stock into WIP and out are crucial, but ultimately when the picking list is posted the physcial stock is removed and it is taken out of the inventory asset into the WIP, but then you may backflush at RAF so at the same time this happens to the components the RAF item is booked into inventory. These are moved at cost but adjusted to actual cost at end.

I would not include WIP because it is not physically there, but then it depends what you mean by reconciliation and what your entire process is.

thank you for clarifying this Adam. We are posting the production pick & RAF to the GL that is being compared with inventory, which we shouldn’t have. Rather it makes sens to post in a separate GL accounts. So we may need to disregard the WIP amount from GL from recon perspective. At production start, raw item is auto-consumed and none during operation and RAF stage. So from the inventory value report, it seems that during Pick and RAF stage, the inventory doesn’t reflect the physical cost amount but is reflected in the WIP. These are moved at estimated cost but reversed when PO ends with actual posted to Inventory & GL. Since we don’t back-flush during RAF stage, until production ends, the WIP is not depleted back to inventory, though we may get a break up of raw and finished items in progress. Correct? we may not know true cost of items in process, as these are not valued at inventory cost (running average with FIFO) rather the estimates.

Hi Patrick

Yes the WIP should be in separate accounts because it is not “physically” present once consumed on a pick from the system perspective. Yes between pick and RAF the physical cost is in WIP - it is not on the inventory stock and not in the asset account. All of this is correct. WIP is never depleted until End no matter when you flush, which is one of the reasons it is important to control the end process, again at RAF you physical inventory is increased by the finished product as is the asset account, again at estimated or actual depending upon your setting, which is again updated at End. True costs can fluctuate later as Purchase Order Invoices are processed and true costs are flushed through.

Thanks a lot, Adam for confirming my understanding. one question on the significance of PO invoices - I always thought to process the PO invoices during the period prior to inventory close, (especially when we settle only financial updates and no “physical value”) but we have left some PO open (not as invoiced). If that be the case, moving to next month, assuming we invoice those PO (received in the past months), I would hope that AX would try to settle these invoiced receipts to Issue in the current month even when the inventory for the previous month is closed (as those PO were not considered because it wasn’t invoiced in the last month). Is that correct?

I beleive so, but you will soon find out [:D]

Hello Adam, i have a quick question on WIP clearing accounts and WIP account - During Start and RAF stage the WIP clearning accounts, namely Pick List Offset and RAF offset record the value of items moving in & out of “WIP” - sum of these two represent the total value in WIP.

When production ends, issue and receipts record the actuals (financial value). The offset a/cs to these represent the value of the WIP. Is that correct? (as they hold financial value of raw item issued and finished items received)

Appreciate it.

At the ending of production WIP is completely reversed, leaving you no entries and no differences, this is important because the material cost may have moved, and therefore AX re-reads the material costs when re-processed the RAF inventory value. This means the raw material and FG pushed into WIP will be 0 at end, the FG will be seen as a positive in the asset account with the raw material being a reduction in the inventory asset account that helped to create the value of the finished goods.

thanks Adam. So to get what is in the WIP at any given time, in terms of the cost and the items, (assuming production orders in start and RAF stages), we use the Inv. valuation report but to compare with GL - Should we be comparing with sum of product pick and RAF pick-list offset accounts? for some reason, the AX shows lot more in WIP compared to these accounts. I wonder if there is anything to be considered - FIFO. thank you

You would need to look at the item group setup and the offset accounts accumulating WIP, you need to ensure this is also mirrored in the process, it maybe some elements are manually consumed to WIP, others forward flushed and others back flushed at RAF which complicates matters, you then have the finished goods posting and where this goes and how you account for it. If you have a lot more in WIP than you think you should have then either orders are not being ended, or you are posting to the accounts through another process. Ultimately you need to start digging into transactions.

thanks Adam. as I digg into it, I found that some of the RAF weren’t posted - as the item cost price wasn’t set up in the item form (zero). almost all of them are preflushed at start. As the order in process, the value of the inventory cannot determined correctly (track physical value is not ticked in item model form) Is it? - even if we tick it, the picklist posting is based on the estimates anyway - so running inventory recal isn’t going to help, I think. Perhaps ticking the “latest cost price” on the item form may help bridge the price gap during work in process - calculation of the estimate. Is it?

thank you again.

It will all flush through in the close once the invoice is processed, and as for the WIP values the latest cost price would help depending upon fluctuations in pricing (and it is only updated at invoice)

thanks adam. I am going to use the ‘latest cost price’ for materials and perhaps tick "use estimated cost price’ for RAF and make sure the purchase is invoice updated for the given period prior to inventory close.

Quick question adam - when production starts, ledger a/c for Production Pick is CR with material consumption and WIP ledger account track the inventory added to WIP. Now, does the physical inventory is deducted at this stage? say, before the start my total physical+financial inventory amount is $2000. I start the production order that consume raw material at $500 (auto consumption). At this stage, Pick ledger is $500 CR, WIP ledger is $500Dr. Ax showing WIP inventory as $500. What about the physical inventory - does it come down by $500 i.e. total inventory (including physical + financial) is $1500. I think the physical amount doesn’t come down rather the total inventory stays at $2000. Is it? When order ends, then your inventory is deducted by $500 (assuming it is the actual).

Also when a report as finished, say we report $300, does that mean, your physical inventory does goes up by this amount, while you WIP comes down to $200. I want to double check on this.

Production pick is a physical activity but it doesn’t affect your inventory rather WIP inventory. is that correct?

Appreciate your help. thanks adam.

I checked that the physical inventory does reduce while wip proportionately increases. thanks.