Actual Costing: Transactions Posting to Inventory Distribution Journals
The following subsections outline every transaction that is posted to the inventory distribution journals when some method of actual costing is being used.
Because the costs and account numbers used for the journal posting are quite different if using standard costing or one of the four actual cost flow methods, the transactions generated are explained for both standard and actual. If the system should not automatically generate these transactions, clear the General Parameters form's Post to Journal check box.
See Posting to General Ledger - Actual Costing for more information.
Purchasing Transactions
The following transactions are posted to the inventory distribution journal named PO Dist.
- Purchase Order Receipt:
Transaction Debit Credit Inventory Material xxxx Vouchers Payable xxxx Because this item is purchased, only one posting (Inventory Material Cost) is applicable. All accounts for each cost details component would have the same account number, therefore only one posting entry is made.
The cost used is the quantity received multiplied by the purchase order line item unit cost. (This is the default cost. At the time of receipt, it is possible for you to update the receipt cost to anything.)
CU = (RQ * POUC)
where:
- CU = Cost Used
- RQ = Receipt Quantity
- POUC = PO Unit Cost
- Purchase Order Return:
Transaction Debit Credit Vouchers Payable xxxx Inventory xxxx Inventory Adjustment xxxx or xxxx The cost used is the quantity returned multiplied by the item's issue cost:
CU = (QR * IIC)
where:
- CU = Cost Used
- QR = Quantity Returned
- IIC = Item's Issue Cost
- Voucher Generation:
Transaction
a. If vouchered cost > receipt cost:
Vouchers Payable
Accounts Payable
b. If vouchered cost < receipt cost:
Vouchers Payable
Inventory Adjustment
Accounts Payable
The previous transaction is created only if any line items were vouchered at a different cost than the cost at which they were received into inventory. (The cost at which the items were received into inventory is the line item unit cost field at the time of the receipt.)
xxxx = (quantity received * (vouchered cost - receipt cost))
xxxx = (cost of receipt - cost of voucher) - adjustment
POVC = QR * (VC - RC)
where:
- POVC = Purchase Order Variance Cost
- QR = Quantity Received
- VC = Voucher Cost
- RC = Receipt Cost
Production Transactions
The following transactions are posted to the inventory distribution journal named SF Dist.
- Job Material Issue:
Transaction Debit Credit WIP Material Costs xxxx WIP Labor Costs xxxx WIP Fixed Overhead Costs xxxx WIP Variable Overhead Costs xxxx WIP Outside Costs xxxx Inventory Material xxxx Inventory Labor xxxx Inventory Fixed Overhead xxxx Inventory Variable Overhead xxxx Inventory Outside xxxx Fixed Material Overhead Applied xxxx Variable Material Overhead Applied xxxx The inventory accounts used are those of the item being issued to the job, not the item being manufactured. The inventory credit amount is the quantity issued from inventory multiplied by the issue cost of the item.
ICA = QIFI * IC
where:'
- ICA = Inventory Credit Amount
- QIFI = Quantity Issued from Inventory
- IC = Issue Cost
The credits to the overhead accounts are calculated by multiplying the actual material cost by the fixed and variable overhead rates in the Product Codes form.
COA = MC * (FO + VOR)
where:
- COA = Credits to the Overhead Account
- MC = Material Cost
- FO = Fixed Overhead
- VOR = Variable Overhead Rate
The debit to WIP is the sum of the direct material, fixed overhead, and variable overhead amounts.
DTWIP = DM + FO + VOA
where:
- DTWIP = Debit to WIP
- DM = Direct Material
- FO = Fixed Overhead
- VOA = Variable Overhead Amounts
- Job Material Withdrawal:
Transaction Debit Credit Inventory Material xxxx Inventory Labor xxxx Inventory Fixed Overhead xxxx Inventory Variable Overhead xxxx Inventory Outside xxxx WIP Material Costs xxxx WIP Labor Costs xxxx WIP Fixed Overhead Costs xxxx WIP Variable Overhead Costs xxxx WIP Outside Costs xxxx Fixed Material Overhead Applied xxxx Variable Material Overhead Applied xxxx The debit to inventory is the quantity of the item withdrawn from the job multiplied by a unit cost figure which varies depending on the costing method in use.
DTI = QIWJ * VUCF
where:
- DTI = Debit to Inventory
- QIWJ = Quantity of the Item Withdrawn from the Job
- UCF = Unit Cost Figure
The debits to the overhead accounts are calculated by multiplying the average cost of all items issued. The job material total actual cost/job material quantity issued.
DOA = MT / JI
where:
- DOA = Debits to the Overhead Account
- MT = Job Material Total actual cost
- JI = Job material quantity issued
The credit to WIP is the sum of direct material, fixed overhead, and variable overhead amounts.
CTWIP = DM + FO + VOA
where:
- CTWIP = Credit to WIP
- DM = Direct Material
- FO = Fixed Overhead
- VOA = Variable Overhead Amounts
- Post Job Transaction
Labor:
Transaction Debit Credit WIP Labor Costs xxxx WIP Fixed Overhead Costs xxxx WIP Variable Overhead Costs xxxx Direct Labor Applied xxxx Fixed Labor Overhead Applied xxxx Variable Labor Overhead Applied xxxx The credit to labor is the actual hours in the transaction multiplied by the specified manufacturing rate of the employee who reported the transaction.
CTL = AH * SMR
where:
- CTL = Credit To Labor
- AH = Actual Hours
- SMR = Specified Manufacturing Rate
The credits to the overhead accounts are calculated by multiplying the actual labor hours by the fixed and variable overhead rates in the Departments form.
COA = LH * (FO + VOR)
where:
- COA = Credits to the Overhead Account
- LH = Labor Hours
- FO = Fixed Overhead
- VOR = Variable Overhead Rate
The debit amount to WIP is the sum of direct labor, fixed overhead, and variable overhead amounts.
- WIP Amount = (actual hours * employee manufacturing rate) + (actual hours * department fixed overhead rate) + (actual hours * department variable overhead rate)
- Direct Labor =(actual hours * employee manufacturing rate)
- Fixed Labor Overhead = (actual hours * department fixed overhead rate)
- Variable Labor Overhead = (actual hours * department variable overhead rate)
- Post Job Transactions: Machine transactions
Machine costs apply machine overhead charges to a job operation for the hours a machine was run, along with the quantity of goods completed, scrapped, and moved to the next operation. If the work center for the operation is machine scheduled, the remaining scheduling time for the operation will be reduced by the total hours posted.
The additional posting described below for the "Move" transaction is also performed for all "Run" transactions.
- Job Finish (Put to Stock):
Transaction Debit Credit Inventory Material xxxx Inventory Labor xxxx Inventory Fixed Overhead xxxx Inventory Variable Overhead xxxx Inventory Outside xxxx WIP Material Costs xxxx WIP Labor Costs xxxx WIP Fixed Overhead Costs xxxx WIP Variable Overhead Costs xxxx WIP Outside Costs xxxx When inventory is received from a job, the receipt cost used is determined by:
- The Shop Floor Control Parameters form's Costs Based on Complete field.
- The status of the job.
- The Complete flag on the job's operations.
If the receipt is being performed using a labor transaction on the last operation, you have the option of closing the job order. If the job is closed when the transaction is entered, the receipt cost used is always the actual unit cost of the job. If the job is not closed and the Costs Based on Complete parameter is set to Jobs, the receipt cost used is the planned unit cost of the job.
The planned unit cost is based on the setup, run-times, run rates, and labor overhead rates in the Job Operations form as well as the unit costs and the material overhead rates in the Job Materials form.
If the job is not closed and the Costs Based on Complete parameter is set to Operations, the receipt cost used is determined by the Complete flag of the job's operations. Actual costs from complete operations are accumulated while planned costs from incomplete operations are accumulated to determine the final receipt cost.
- Job Closed Manually:
Transaction Debit Credit a. If actual cost > planned cost: Inventory Adjustment xxxx WIP Material Costs xxxx WIP Labor Costs xxxx WIP Fixed Overhead Costs xxxx WIP Variable Overhead Costs xxxx WIP Outside Costs xxxx b. If actual cost < planned cost: WIP Material Costs xxxx WIP Labor Costs xxxx WIP Fixed Overhead Costs xxxx WIP Variable Overhead Costs xxxx WIP Outside Costs xxxx Inventory Adjustment xxxx If the job is being closed manually by changing the status from Released to Complete an adjustment needs to be made since the job's planned cost would have been used for the transaction that put the item to stock.
The amount used is the difference between the total planned and actual cost of the job:
AU = TPC - AC
where:
- AU = Amount Used
- TPC = Total Planned Cost
- AC = Actual Cost
Customer Order Transactions
The following transactions are posted to the inventory distribution journal named CO Dist.
- Customer Order Shipment:
Transaction Debit Credit COGS Material xxxx COGS Labor xxxx COGS Fixed Overhead xxxx COGS Variable Overhead xxxx COGS Outside xxxx Inventory Material xxxx Inventory Labor xxxx Inventory Fixed Overhead xxxx Inventory Variable Overhead xxxx Inventory Outside xxxx The amount used is the quantity shipped multiplied by the issue cost of the item.
AU = QS * ICI
where:
- AU = Amount Used
- QS = Quantity Shipped
- ICI = Issue Cost of the Item
- Customer Order Return:
Transaction Debit Credit Inventory Material xxxx Inventory Labor xxxx Inventory Fixed Overhead xxxx Inventory Variable Overhead xxxx Inventory Outside xxxx COGS Material xxxx COGS Labor xxxx COGS Fixed Overhead xxxx COGS Variable Overhead xxxx COGS Outside xxxx The amount used is the average value of all shipments.
AU = CST / IQS
where:
AU = Amount Used
CST = Item's Cost of Goods Sold Total
IQS = Item's Quantity Shipped
Inventory Control Transactions
The following transactions (unless otherwise specified) are posted to the inventory distribution journal named IC Dist.
- Inventory Adjustment:
Transaction Debit Credit a. Increase quantity: Inventory Material xxxx Inventory Labor xxxx Inventory Fixed Overhead xxxx Inventory Variable Overhead xxxx Inventory Outside xxxx Inventory Adjustment xxxx b. Decrease quantity: Inventory Adjustment xxxx Inventory Material xxxx Inventory Labor xxxx Inventory Fixed Overhead xxxx Inventory Variable Overhead xxxx Inventory Outside xxxx The amount used for an inventory adjustment transaction varies depending on the cost flow method in use. If you are using:
- Average costing, the system uses the Items form's unit cost.
- Specific, the system uses the cost tied to the location that is being adjusted.
- LIFO or FIFO and increasing the quantity, the cost used is the cost tied to the last item LIFO record on file for the item.
- LIFO or FIFO and decreasing the quantity, the system consumes records from the item LIFO stack until the adjustment quantity is satisfied.
Cycle counting and physical inventory posting create transactions like the ones described above. Either transaction a or b is created, depending on whether the count quantity is greater than or less than the original quantity.
- Inventory Move:
Transaction Debit Credit Inventory Material xxxx Inventory Labor xxxx Inventory Fixed Overhead xxxx Inventory Variable Overhead xxxx Inventory Outside xxxx Inventory Material xxxx Inventory Labor xxxx Inventory Fixed Overhead xxxx Inventory Variable Overhead xxxx Inventory Outside xxxx Inventory Adjustment This transaction is posted only if the From and To locations have different inventory accounts tied to them or if specific costing is being used and the From and To locations have different unit costs tied to them.
The inventory account debited is the account tied to the To location. The credited inventory account is the account tied to the From location. The inventory adjustment account is used only for specific costing when the From and To accounts have different costs assigned to them.
- Location Update:
A transaction is created if you change the inventory account tied to the location:
Transaction Debit Credit Inventory (New Accounts): Inventory Material Cost xxxx Inventory Labor Cost xxxx Inventory Fixed Overhead Cost xxxx Inventory Variable Overhead Cost xxxx Inventory Outside Cost xxxx Inventory (Old Accounts): Inventory Material Cost xxxx Inventory Labor Cost xxxx Inventory Fixed Overhead Cost xxxx Inventory Variable Overhead Cost xxxx Inventory Outside Cost xxxx A transaction is also created if specific costing is in use and you change the unit cost tied to the location.
(This example assumes that all cost detail values are changed.)
Transaction Debit Credit a. Increase cost: Inventory Material xxxx Inventory Labor xxxx Inventory Fixed Overhead xxxx Inventory Variable Overhead xxxx Inventory Outside xxxx Inventory Adjustment xxxx b. Decrease cost: Inventory Adjustment xxxx Inventory Material xxxx Inventory Labor xxxx Inventory Fixed Overhead xxxx Inventory Variable Overhead xxxx Inventory Outside xxxx - Location Insertion:
Transaction Debit Credit Inventory Material xxxx Inventory Labor xxxx Inventory Fixed Overhead xxxx Inventory Variable Overhead xxxx Inventory Outside xxxx Inventory Adjustment xxxx This transaction is only posted if a quantity is entered for the location at the same time it is added.
- Miscellaneous Receipt:
Transaction Debit Credit Inventory Material xxxx Inventory Labor xxxx Inventory Fixed Overhead xxxx Inventory Variable Overhead xxxx Inventory Outside xxxx Inventory Adjustment xxxx The debit amount used is the quantity received extended by the unit cost you entered.
DAU = QR * UCEBU
where:
- DAU = Debit Amount Used
- QR = Quantity Received
- UCEBU = Unit Cost Entered by you
The unit cost defaults to the value in the Items form's Unit Cost field at the time the transaction is entered.
The credit account is the GL account number you entered. The account defaults to the item's Inventory Adjustment account.
- Miscellaneous Issue:
Transaction Debit Credit Account Entered xxxx Inventory Material xxxx Inventory Labor xxxx Inventory Fixed Overhead xxxx Inventory Variable Overhead xxxx Inventory Outside xxxx The debit account is the GL account number you entered. The account defaults to the item's Inventory Adjustment account.
The credit amount used is the quantity issued multiplied by the issue cost of the item:
CA = QI * IC
where:
- CA = Credit Amount
- QI = Quantity Issued
- IC = Issue Cost
- Job Material Issue:
The following transactions are posted to the inventory distribution journal named SF Dist.
Transaction Debit Credit WIP Material Costs xxxx WIP Labor Costs xxxx WIP Fixed Overhead Costs xxxx WIP Variable Overhead Costs xxxx WIP Outside Costs xxxx Inventory Material xxxx Inventory Labor xxxx Inventory Fixed Overhead xxxx Inventory Variable Overhead xxxx Inventory Outside xxxx Fixed Material Overhead Applied xxxx Variable Material Overhead Applied xxxx - Job Receipt:
The following transaction(s) are posted to the inventory distribution journal named SF Dist.
Transaction Debit Credit Inventory Material xxxx Inventory Labor xxxx Inventory Fixed Overhead xxxx Inventory Variable Overhead xxxx Inventory Outside xxxx Fixed Material Overhead Applied xxxx Variable Material Overhead Applied xxxx WIP Material Costs xxxx WIP Labor Costs xxxx WIP Fixed Overhead Costs xxxx WIP Variable Overhead Costs xxxx WIP Outside Costs xxxx