Inventory recalculation adjustment of misc charges

Dear All,
Need help on the below issue:

Item X is purchased for cost of 135000/- on 20th Nov, and sold for 180000/- on 26th Nov. Later, misc. charges are adjusted to purchase invoice of 10000/- on 10th Dec. When inventory recalculation is run on 31st Dec, system posted below entry:

Entry:
COGS a/c Dr 10000
| Inventory a/c Cr 10000.

In reality, there is no physical qty. of item exists, still system posted additional cost to item and adjusted the actual item cost.

How far, this functionality is acceptable from an accounting and auditing point of view. Because, without physical qty. presence, how can we show inventory value in accounts.

Further, our requirement is:- system should post the below entry:

Entry:
COGS a/c Dr 10000
Price variance a/c Cr 10000

Please offer your suggestions/solutions asap.

Thanks in advance.
Shrinivas

Hi Srinivas,

System is posting as per norms only. By crediting inventory, it is showing you exact inventory value. If you don’t require inventory ledger to be hit, then you needn’t adjust posted PO with miscellaneous charge. You can pass an adjustment voucher.

Price variance is generally recorded in standard costing. Are you following standard costing? If Yes then inventory closing is not required there.

Pranav…

Hi Pranav,
Thanks for reply.

We are following weighted avg. method.
If we don’t adjust posted PO-Invoice with misc. charges, our landed cost of item purchased will be wrong with which profit calculation on this item sold will also go wrong.
We have to add these misc. costs to the Item purchased to arrive at total cost of purchase.

If we pass an adjustment voucher, this cost will not load onto item and its cost of purchase. Instead it will hit to ledger account. (You can correct me here if am wrong)

When you say pass an adjustment voucher, how does it will be posted, using which journal. Can you brief on this.?

Please suggest.

Regards
Shrinivas

As per your first post, you required following entry:

Entry:
COGS a/c Dr 10000
Price variance a/c Cr 10000

Here the inventory is not being debited. As per your second post:

“If we don’t adjust posted PO-Invoice with misc. charges, our landed cost of item purchased will be wrong with which profit calculation on this item sold will also go wrong…”

There is a conflict in your statement.

In my earlier post, i suggested that inventory debit is justified when misc. charge is added and pass manual voucher only if you want to pass entery to voucher or some other ledger.

Pranav…

Hi Pranav,

Thanks for inputs.

I understood the concept.

Srinivas