Setting Inventory Costing Preferences

When you use the Inventory feature, the inventory preferences help you control the way inventory costing runs.

Preferences that appear on the Inventory Costing Preferences page depend on the features and preferences you use.

To set inventory costing preferences:

1. Go to Setup > Accounting > Inventory Costing Preferences.

2. In the Scheduling Inventory Costing field, choose from the following options to schedule when inventory costing is initiated:

   • After transaction entry – After each transaction successfully saves, NetSuite processes the inventory costing impact for the transaction immediately.

     

   • Based on custom schedule – After each transaction successfully saves, NetSuite processes the inventory costing impact for these transactions only according to a customized schedule.

     
     Note:

     With this setting, when a transaction is entered and saved, the item uses average costing for that point in time. Later, when costing runs according to the custom schedule, NetSuite corrects the cost on that transaction.

     When you choose this setting, the following fields are available to determine the costing schedule:

     • Earliest Custom Schedule Start Time – The earliest time to initiate the inventory costing process

     • Latest Custom Schedule End Time – The latest time to initiate the inventory costing process

     • Respect Inventory Costing Time Restrictions on Weekends – Enable this preference if you prefer not to run the costing process during weekends.

   • Every hour – After each transaction successfully saves, NetSuite processes the inventory costing impact for these transactions one time per hour.

     

3. In the Use Cost Estimate for Negative Inventory field, choose how item cost is calculated for inventory with levels below zero:

   • Last Purchase Price – In a negative inventory scenario, the last purchase price is utilized for calculations.

   • Zero – In a negative inventory scenario, an amount of zero is posted for the inventory depletions.

   • Average Cost – In a negative inventory scenario, the average cost is posted for the inventory depletions.

   Important:

   Your selection for the Use Cost Estimate for Negative Inventory preference applies to only items using FIFO, LIFO, Specific and Lot-Numbered costing. This inventory costing preference does not apply to items that use Average costing. Average costing items use the most recent above-water average for cost estimates. This preference does not apply to items that use Standard costing. Standard costing items always use Standard costing.

4. To display the Use Exact Cost on Linked Returns option, check the Use Exact Cost on Linked Returns box.

The following are explanations of the options available for the Use Cost Estimate for Negative Inventory preference.

Last Purchase Price

In a negative inventory scenario, the last purchase price is utilized for calculations.

Notice in row 4 that when 10 units are shipped, this brings the on-hand quantity below zero. For that transaction, the cost is estimated from the most recent previous purchase price, or $5 per unit. Later, when 100 units are received in row 5, the cost is $25 per unit and adjustment amounts post to correct the previous entry.

1	6/7/2021 Receive 25 units at $15 each	Last Purchase Price = $15 Average Cost = $15 On Hand = 25	DR Asset account $375 CR Accrual account $375
2	6/8/2021 Receive 25 units at $5 each	Last Purchase Price = $5 Average Cost = $10 On Hand = 50	DR Asset account $125 CR Accrual account $125
3	6/10/2021 Ship 50 units	Last Purchase Price = $5 Average Cost = $10 On Hand = 0	CR Asset account $500 DR COGS $500
4	6/11/2021 Ship 10 units	Last Purchase Price = $5 Average Cost = $0 On Hand = 0	CR Asset account 10 x $5 (estimated Last Purchase Price) DR COGS 10 x $5 (estimated Last Purchase Price)
5	6/12/2021 Receive 100 units at $25 each	Last Purchase Price = $25 Average Cost = $25 On Hand = 90	DR Asset account $2500 CR Accrual account $2500 CR Asset $200 (adjustment entry) DR COGS Adjustment $200 (adjustment entry)

Zero

In a negative inventory scenario, an amount of zero is posted for inventory depletions.

Notice in row 4 that when 10 units are shipped, this brings the on-hand quantity below zero. For that transaction, the cost is estimated as $0 per unit. Later, when 100 units are received in row 5, the cost is $25 per unit and adjustment amounts post to correct the previous entry.

1	6/7/2021 Receive 25 units @ $15	Last Purchase Price = $15 Average Cost = $15 On Hand = 25	DR Asset account $375 CR Accrual account $375
2	6/8/2021 Receive 25 units @ $5	Last Purchase Price = $5 Average Cost = $10 On Hand = 50	DR Asset account $125 CR Accrual account $125
3	6/10/2021 Ship 50 units	Last Purchase Price = $5 Average Cost = $10 On Hand = 0	CR Asset account $500 DR COGS $500
4	6/11/2021 Ship 10 units	Last Purchase Price = $5 Average Cost = $0 On Hand = 0	CR Asset account $0 (estimated as zero) DR COGS $0 (estimated as zero)
5	6/12/2021 Receive 100 units @ $25	Last Purchase Price = $25 Average Cost = $25 On Hand = 90	DR Asset account $2500 CR Accrual account $2500 CR Asset $250 (adjustment entry) DR COGS Adjustment $250 (adjustment entry)

Average Cost

In a negative inventory scenario, the average cost is posted for inventory depletions.

Notice in row 4 that when 10 units are shipped, this brings the on-hand quantity below zero. For that transaction, the cost is estimated as the average cost of the item at that point in time. Later, when 100 units are received in row 5, the cost is $25 per unit and adjustment amounts post to correct the previous entry.

1	6/7/2021 Receive 25 units @ $15	Last Purchase Price = $15 Average Cost = $15 On Hand = 25	DR Asset account $375 CR Accrual account $375
2	6/8/2021 Receive 25 units @ $5	Last Purchase Price = $5 Average Cost = $10 On Hand = 50	DR Asset account $125 CR Accrual account $125
3	6/10/2021 Ship 50 units	Last Purchase Price = $5 Average Cost = $10 On Hand = 0	CR Asset account $500 DR COGS $500
4	6/11/2021 Ship 10 units	Last Purchase Price = $5 Average Cost = $0 On Hand = 0	CR Asset account 10 x $10 (estimated average cost) DR COGS 10 x $10 (estimated average cost)
5	6/12/2021 Receive 100 units @ $25	Last Purchase Price = $25 Average Cost = $25 On Hand = 90	DR Asset account $2500 CR Accrual account $2500 CR Asset $150 (adjustment entry) DR COGS Adjustment $150 (adjustment entry)

Related Topics

Costing Methods

Selecting a Default Cost of Goods Sold (COGS) Account

Inventory Costing and Assembly Items

LIFO/FIFO Inventory Costing and Advanced Receiving

System Cost of Goods Sold Adjustments

Viewing Inventory Reports

Inventory Costing Recalculations

Troubleshoot Inventory Costing

Cost Accounting Status on Item Records

Item Return Costing

Group Average Costing

Standard Costing

Item Costing

General Notices