This example assumes that you set Direct Posting to NO on the G/L accounts described.Īs you understand the concept behind this, you can easily incorporate Item Charges, WIP, etc into this formula. You can play around with the account schedule to see if you’re able to get it going. The formula gets a little more involved when you start involving Item Charges (landed cost assignments). It doesn’t matter if you turn on Exact Cost Reversing or if your client says “this doesn’t happen, we always use the same cost that we bought it at”. You can separate it out as a different line item on your income statement if you wish. So you can say the sum of Purchases and Direct Cost Applied is the difference between vendor returns and the vendor purchases.įor most companies, these amounts are lumped together to be displayed under inventory adjustment on the income statement. That’s the actual price paid for the item to the vendor so that’s the cost it’s should be relieved from inventory. The extra $2.00 entries are posted because the cost of the item is $10.00. + $8.00 Direct Cost Applied (assuming this is what’s on the Unit Cost (LCY) field on the purchase credit memo line)Īdditional, NAV will make these 2 entries: – $8.00 Inventory (assuming this is what’s on the Unit Cost (LCY) field on the purchase credit memo line) When you post the credit memo, the following will happen: Now, suppose you need to return this product to the vendor and the vendor is only willing to give you credit for $8.00. Let me explain, when you invoice a purchase order for $10.00 for item A, the following happens: When items are returned using the purchase return order (or purchase credit memo), the cost being used to return the product is deducted based on your costing method, NOT what you typed in as the direct unit cost on the purchase return/credit. The reason why we need to set this up is because of purchase returns. In this example, I used the standard Business Central COGS account to check my work.īoom! The COGS I calculated and the standard BC COGS matches! Good to go! What was the point for lines A040 to A060? (Read only if you’re interested in the accounting and costing aspect of it) The way to set the formula to give the proper COGS based on the CPA formula on the Account Schedules is the following:Ī010 – Beginning Inventory ( Row Type = Beginning Balance)Ī020 – Purchases ( Row Type = Net Change)Ī030 – Inventory Adjustment ( Row Type = Net Change) Set it to NOT showĪ040 – Direct Cost Applied ( Row Type = Net Change) Set it to NOT showĪ050 – Inventory Adjustment ( Formula = A020 + A030 + A040)Ī060 – Ending Inventory ( Row Type = Balance at Date)ī010 – COGS ( Formula = A010 + A020 – A050 – A060)Īfter you setup the accounts schedule, you can use the Overview functionality to check your work. Let’s say you have the following Chart of Accounts: This calculation is actually pretty easily defined in the NAV account schedules. What ends up happening is that company will believe they need to purchase all sorts of fancy reporting tools when the out of the box Account Schedules functionality will work just fine. This formula gives all sorts of problems when trying to produce a proper financial statement to the CPA to do their tax returns in Business Central. Typically, when a CPA (Certified Public Accounts) report COGS, it’s calculated and displayed based on the following formula: Don’t assume otherwise! How Accountants Calculate COGS The COGS posted by Business Central is ALWAYS correct. How Dynamics 365 Business Central calculates COGS is based on your Costing Method in conjunction with running the Adjust Cost – Item Entries process. In this case, the COGS is automatically calculated and posted to your COGS account. When the items are sold, 4 General Ledger accounts are hit: In Dynamics 365 Business Central, when a purchase of inventory is made, 4 General Ledger accounts are hit: One of the subjects that always come up for debate is how COGS (Cost of Goods Sold) is calculated. Sometimes, how a computer system does accounting will be different than how traditional accountants does accounting.
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