Example of Receipt Cost Adjustment
This example illustrates the accounting entries resulting from a receipt cost adjustment for an invoice price variance, the revaluation of inventory, and propagation of the cost adjustment to interorganization transfers and sales issues.
Scenario
Organization A has a purchase order receipt, for which it subsequently processes an invoice price variance adjustment. Organization A fills a sales order, and transfers some of its inventory to Organization B, who fills another sales order.
Transaction Details
Organization A has a PO receipt of 100 units at $100 per unit, of which it sells 30 units, and transfers 20 units to Organization B at a transfer price of $125. Organization B in turn sells 6 units. The IPV for the initial PO receipt is $20 per unit.
Analysis
Run the cost processor to cost the initial PO receipt, the interorganization transfer, and the sales issues from Organization A and Organization B. After entering the receipt cost adjustment for the IPV of $20 per unit, rerun the cost processor to update the value of remaining inventory, and to propagate the IPV adjustment to the interorganization transfer, and the sales issues from Organization A and Organization B.
Resulting Accounting Entries
The cost distribution processor creates accounting entries for the PO receipt, interorganization transfer to Organization B, and sales issues from Organization A and Organization B. The following table describes those accounting entries:
|
Event |
Accounting Entries |
|---|---|
|
Organization A PO receipt: 100 units at $100 |
Dr Inventory (Material) $100*100 Cr Receiving Inspection $100*100 |
|
Sales issue from Organization A: 30 units at $100 per unit |
Dr DCOGS $100*30 Cr Inventory $100*30 |
|
100 percent COGS recognition for sales issue |
Dr COGS $100*30 Cr DCOGS $100*30 |
|
Transfer from Organization A to Organization B: 20 units at $125 per unit |
Dr Interorganization Receivable $125*20 Cr Inventory (Material) $100*20 Cr Interorganization (Gain/Loss) $25*20 |
|
Interorganization receipt by Organization B from Organization A: 20 units at $125 |
Dr Inventory (Material) $100*20 Dr Inventory (Profit in Inventory) $25*20 Cr Interorganization Payable $125*20 |
|
Sales issue from Organization B: 6 units at $125 per unit |
Dr DCOGS (Material) $100*6 Dr DCOGS (Profit in Inventory) $25*6 Cr Inventory (Material) $100*6 Cr Inventory (Profit in Inventory) $25*6 |
|
100 percent COGS recognition for sales issue |
Dr COGS (Material) $100*6 Cr DCOGS (Material) $100*6 Dr COGS (Profit in Inventory) $25*6 Cr DCOGS (Profit in Inventory) $25*6 |
The cost distribution processor creates accounting entries for the IPV adjustment to inventory value, and to propagate the IPV adjustment to the interorganization transfer, and to the sales issues from Organization A and Organization B. The following table describes those accounting entries :
|
Event |
Accounting Entries |
|---|---|
|
Organization A Inventory cost adjustment: 100 at $20 |
Dr Inventory (Material) $20*100 Cr Receiving Inspection $20*100 |
|
Propagate adjustment to interorganization transfer from Organization A to Organization B: 20 units at $20 Because the transfer price remains the same, we revalue the interorganization gain/loss. |
Dr Interorganization Gain/Loss $20*20 Cr Inventory (Material) $20*20 |
|
Propagate adjustment to interorganization receipt by Organization B from Organization A: 20 units at $20 |
Dr Inventory (Material) $20*20 Cr Offset Account $20*20 Dr Offset Account $20*20 Cr Inventory (Profit in Inventory) $20*20 |
|
Propagate adjustment to sales issue from Organization A: 30 units at $20 |
Dr COGS $20*30 Cr Inventory (Material) $20*30 |
|
Propagate adjustment to sales issue from Organization A: 30 units at $20 |
Dr DCOGS (Material) $20*30 Cr Inventory (Material) $20*30 |
|
Propagate adjustment to COGS recognition |
Dr COGS (Material) $20*30 Dr DCOGS (Material) $20*30 |
|
Propagate adjustment to sales issue from Organization B: 6 units at $20 |
Dr DCOGS (Material) $20*6 Cr Inventory (Material) $20*6 Dr Inventory (Profit in Inventory) $20*6 Cr DCOGS (Profit in Inventory) $20*6 |
|
Propagate adjustment to COGS recognition |
Cr COGS (Profit in Inventory) $20*6 Dr DCOGS (Profit in Inventory) $20*6 Dr COGS (Material) $20*6 Cr DCCOGS (Material) $20*6 |