We’re looking for a suggestion for the easiest way to handle routinely expensing inventory items. We just recently implemented NAV 2013 and are still getting the hang of things but we want to get this figured out before we go too far in the wrong direction.
We have an item in our inventory list for everything that we order. This includes everything from raw materials that go into our end products to the small tools that we use in the lab. We do this so that a) we don’t have to remember if an item is inventory tracked or not (all things that are purchased are entered into the system) and b) the lab personnel can do a requisition for a new screwdriver without having to find the actual part number from the supplier and email it to us.
Originally we wanted to expense the items (screw drivers, etc) as they are received through some automated way. We have come to realize that this probably isn’t the best way to go about it though. Now I’m thinking we should have a new location for items that will be expensed (these items will be received into this new “expense” location) and then on a regular basis (monthly, quarterly, tbd) we can look at the inventory for that location and clear it out to an expense account (or several depending on what the items are).
The problem then becomes: what is the suggested way for expensing an item from inventory? I can do an Item Journal to remove the item from stock, but that works against the Inventory Adjustment account. Do I then have to do a General Journal to adjust the Inventory Adjustment account and move it to the desired expense account?
Ideally I would like to be able to do this in one step (on the item journal). If I could somehow select the expense account on the item journal then that would be perfect. But I can’t do that. The only thing I can change is the product posting group. I read a suggestion somewhere to create a fake product posting group for the expense account (set the inventory adjustment account for that posting group to be the expense account) but because I have several expense accounts this would mean several product posting groups which means many new entries in General Posting Setup (each new product posting group needs 4 entries - one for each of my gen. bus. posting groups). That just doesn’t seem scalable and will result in confusion/clutter later on.
So, any brilliant ideas on how to handle this? I’m really liking the idea of a new location for expensed items, but I’m not sure how to handle it from there. All suggestions welcome!
It is by no means fake - it’s a normal PG, that for PGs are. Only accountants are familiar to GL Accs, PGs are introduced to allow warehouse workers, sales & purchase managers etc etc to concentrate on THEIR job and not learn accounting theory [;)]
Don’t be afraid of having many PG’s defined - you do it once, set up all necessary combinations and forget about them. This will take some time, but will guarantee that correct GL Accs will be used when posting, and your users do not need to memorize that.
This is especially true for Inventory related PGs, as you must distinguish raw materials, minor assets, office consumables (if those are kept in stock, not written off at purchase), the tools you mentioned and so on. If you set those PGs up correctly in ItemCard, it works “in background” later, again nothing to bother about when entering docs.
Do you use Item Categories / Product Groups?
You can define default PostingGroups for ItemCategories, too.
Expense Location is one way to handle your case, but correctly set up PGs (AND defaults) will solve this easily, too.
PS I’ve set up systems with ~70 Inventory PGs - and worked like a clock later. It took a month long collaboration with client’s CFO & Chief Accountant to plan (and set up) the schema, but they were very happy later. We included even cases which showed up maybe twice a year, but after that Purchase Dept worked smoothly on their own, not running to CFO with questions how to process this or that rare case.
Okay, I think you have convinced me to proceed down this route. Now I just need to figure out what I need to do to make it all work.
I will add inventory posting groups for each class of expensed item (lab supplies, lab equipment, etc.).
Then I’m not sure what the minimum I need to setup is. If I were to do this manually (do a purchase order but use a G/L account instead of inventory item) then I would choose the expense account I want it to go into and then when posted it goes into that account, tax goes into the tax account, and A/P gets a value as well.
So with an inventory item that I expense, I want to do the same thing. Looking at an existing inventory item PO, I can see that the A/P and tax parts are working so I can just duplicate that. Then there are 3 other entries: Direct Cost to the inventory account, Direct Cost to the Cost of Goods, Direct Cost account, and Cost of Goods. I’m thinking I point the COG account to the expense account I want but then I’m not sure what to put for the inventory and direct cost accounts. Do I want them to just balance each other out in a clearing account? Or can I just leave them blank? (the inventory account is setup on the inventory posting setup whereas direct cost is in general posting setup.)
I’m thinking I can leave the majority of the other posting setup fields blank. We will never sell these items so the sales stuff isn’t required. All of the applied overhead and stuff I don’t think would be required either? Or would it? Do I need to setup a COG section for each type of expensed inventory posting group? I guess that would make sense …
Now that I’ve written all this, I think what I will have to do is create a new COG section in my CoA for each inventory expense type. In each section there is the usual accounts - CoG, disc. received, inventory adjmt, overhead, purchase variance, direct cost, payment discounts,etc. On the general posting setup I setup a new combination for each of my new inventory posting groups with my existing gen. bus posting groups and link them to these COG accounts (just like all my existing inventory accounts are). In Inventory Posting Setup I link the inventory account to the expense account I want as well as the interim account (I don’t think we need seperate interim accounts for the expensed things?). Then when I invoice items they go into the expense account (instead of inventory account) and everything else functions exactly like a regular inventory item.
Any tips/suggestions would be greatly appreciated!
If I understand your problem correctly, what you want to do is to expense some of the inventory items to an account in G/L (P&L-Expense a/c).
One suggestion, I have which i use is to invoice it to an internal customer account (Create XXY-Internal inventory expense as a customer account). In the payment menthod, in the drop down create a name -Internal Inv_Expense and in the column for G/L A/c mention the G/L A/c number (assume you have created 55555 as a G/L account called Inv_Expense).
Once you invoice the items, the Revenue and CoGs gets affected along with the inventory and Receivables. However, since you have given a G/L account in the specific customer, the system automatically clears the receivables and drops it to the G/L account number referenced.
Thanks for the reply sabu1. I’m not sure if what you have proposed will work for us. Firstly I can’t see any way on a purchase order to invoice the order to a customer. I can invoice it to another vendor account, but not a customer account (maybe I’m just not looking in the right place though?). And besides, whether an item is expensed or not should be determined at the item level and happen automatically (assuming the item has been setup properly) rather than at the order level. Reason being that some of our suppliers provide us with both components that we DO want to track in inventory and components that we want to expense. So we can’t just expense an entire order.
Another potential ‘issue’ with what I want to do is how to handle the actual inventory count for the items received. Even if I do Modris’ proposed method, I think the inventory items will still show a quantity of whatever was received (just their value won’t be in the inventory accounts). Ideally I would like this to be zero’d out when the items are expensed since it doesn’t make sense to track their quantities. Is there a way to easily handle that?
What I’ve recommended to clients in this situation is to create General Business Posting Groups, and the process of using the Item Journal involves populating the appropriate value for General Business Posting Group.
In the General Posting Setup, you configure the Inventory Adjustment Account to be your expense account, for the combination of Gen. Bus. Posting Grp and Gen. Product Posting Grp. involved.
The only concern with this approach is that, unless you remove the Inventory Adjustment account from the records where Gen. Bus. Posting Group is blank, it will be possible for a user to forget to apply the Gen. Bus. Posting Group as per the procedure. So, I’ve had clients eliminate the possibility of using a blank Gen. Bus. Posting Group, thus enforcing that user remembers to use it.