Automatic Cost Posting & Expected Cost Posting feature

As we know that "Automatic Cost Posting", "Expected Cost Posting","Post Cost to G/L" & "Adjust Cost - Item Entries" features play a crucial role in Inventory management.  

1. When "Automatic Cost Posting" field is selected to be "Yes", the ERP system will automatically post the Inventory related transactions in Inventory account, Adjustment Account and COGS account in general ledger.  We still need to remember that user still need to run the "Adjust Cost - Item Entries" & "Post Cost to G/L".

What are the pro's and con's of Automatic Cost Posting?

It depends upon Company to company to select the "Automatic Cost Posting" as "Yes" instead of using as Manual. We need to remember that the feature slows the ERP system and error "Locked by another users" occur regularly if server is speed is not good or their is problem in your ERP network.  I would suggest to make it manually if  inventory transactions are very high and your company works 24 hours a day.    

1. If we want to take care of inventory costing (value of items located) I suggest the creation of a report ad-hoc, in which we choose what we want to monitor.

2. The System has to write much more data (we also use the expected cost posting) so we will have to take care about the total performance in the future, having a look also to the size of the tables involved in the process. I don't know if in your case there was a specific reason of doing that, but I would suggest it to run manually

3. We may choose to switch it off for performance/no. of  inventory related postings reasons.

4. In the batch posting, we can select to post individual transactions instead of in classic Batch mode, thus we get the Navigate feature we mention, and we have control over posting.

Pros:

1. The valuation of inventory with automatic cost posting can be reconciled to G/L at end of any day.

2. The Amount of time required to process the batch posting will be lesser when you use the Auto Cost Post.

3. To see the effect of a Purchase on your Inventory cost you need not have to wait to the end of the Month or till the Batch Job.

Cons:

1. Although the Expected cost posting feature allows to accrue the expected PO costs, the system cannot use this expected cost as a valuation. The users estimated cost on PO must be very realistic. If not given a time lag between Goods receipt and Supplier Invoice is over 1 financial period for Eg: a Month can cause a lot of variation in the G/L.

2. There is a lot of inventory costing (G/L entries) created for every entry. Where as using the Batch Job we can summarise the G/L posting per Inventory Posting Group.

2. Expected Cost Posting : Expected cost is an estimation that the user would have before he gets the final invoice from your vendor. This functionality allows you to have a interim accrual for the purchase before you get the actual invoice to your hand to update the G/L with the actual cost. 

Debit Inventory (Interim) Account                          (Inventory Posting Group)
Credit Inventory Accrual (Interim) Account           (General Posting Setup)

When you post a quantity that is only received or shipped but not invoiced, then a value entry is created with the expected cost. This expected cost affects the inventory value, but is not posted to the general ledger unless you set up the system up to do so.

If only the quantity part of an inventory increase has been posted, then the inventory value in the general ledger does not change unless you have selected the Expected Cost Posting to G/L check box in the Inventory Setup window. In that case, the expected cost is posted to interim accounts at the time of receipt. After the receipt has been fully invoiced, the interim accounts are then balanced and the actual cost is posted to the inventory account.

To support reconciliation and traceability work, the invoiced value entry shows the expected cost amount that has been posted to balance the interim accounts.

The following entries will take place when the "Automatic Cost Posting" is "True" and the "Expected cost posting" is also "True" 

1. When the Purchase order (GRN) is received:---

Debit Inventory (Interim) Account                    ----(Inventory Posting Group)

Credit Inventory Accrual (Interim) Account    -----(General Posting Setup)

Setup of Inventory (Interim) Account: “Financial Management—Setup—Posting Groups—Inventory Setup”.

Setup of Inventory Accrual (Interim) Account : “Financial Management—Setup—Posting Group—General –Posting Setup”.

The date posted is the posting date as defined in the PO Header at the time of Posting the receipt.

Subsequently when the Invoice is received the user has to change the Posting Date on the PO Header and the following entries will be posted

Debit Inventory Accrual (Interim) Account                          ----(General Posting Setup)

Credit Inventory (Interim) Account                                      ----(Inventory Posting Group)

The amount will be the same as above (even if we change the amount at the time of Invoicing) but the Posting Date will be the new posting date as defined at the time of posting the Invoice. Apart from this entry the normal purchase entry with the correct unit costs will be posted. If you need to navigate the expected cost related entries you will have to do so only in the GRN and not from the Invoice. Expected cost reversal will be done on the Invoice posting date. 

When the “Automatic Cost Posting” is checked., the followings tables are updated at the time of receiving the Goods i.e. “G/L Entry”, “Value Entry”, “Item Ledger Entry”, “Posted Purchase Receipt”. 

When the “Automatic Cost Posting” is not checked., the followings tables are updated at the time of receiving the Goods i.e. “Value Entry”, “Item Ledger Entry”, “Posted Purchase Receipt”. “G/L Entry” table is not updated.

                  Acct. Description                          Amounts       Amounts                G/L Acct#
1. During PO receipt

Debit          Inventory (Interim)                         100                                                13010

Credit        Invt. Accrual Acc. (Interim)                                100                            22160

(This is only when expected cost is turned on)

2. When PO is invoiced original entry is reversed ("purchase match")

Debit           Invt. Accrual Acc. (Interim)           100                                                 22160

Credit          Inventory (Interim)                         100                                                 13010



Debit                   Inventory                                95                                                   13000
Credit                 Direct Cost Applied                95                                                    52020
Credit                 A/P                                          95                                                    22100
Debit                 Puchases                                   95                                                    52010



When an item is sold before bill from the vendor is received

Debit                 A/R                                         150                                                    12000
Credit                Sales                                       150                                                    41005
Debit                 COGS                                     100                                                    51000
Credit                Inventory                                100                                                    13000


Debit                 Inventory                                 5                                                        13000
Credit                COGS                                      5                                                         51000



After posting the invoice, the following tables gets updated : “G/L Entry”, “Value Entry”, “Vendor Ledger Entry”, “Detail Vendor Ledger Entry”, “Tax Entry”, “Detailed Tax Entry”.

Another Point to be noted is the expected cost posting has no effect on the Item Ledger entry (posting date will always be the date of receipt) or the value entries (posting date will always be the date of invoicing)

The two setup fields "Automatic Cost Posting" and "Expected Cost Posting" serve different purposes. If "Automatic Cost Posting" is turn on, then inventory cost entries are automatically posted to G/L. If it is off, then you must run "Post Inventory Cost to G/L”

"Expected Cost Posting" determines whether or not "Expected Cost" are posted to the G/L.



Automatic Cost Adjustment Field (Always)

(The Inventory Setup Table)

In this field we can set the program to adjust for any cost changes automatically every time we post inventory transactions. The adjustment process and its consequences are the same as for the Adjust Cost - Item Entries batch job.

Because potential cost adjustment during every inbound posting could slow down database performance, this setup field includes time options (see below) so that we can define how far back in time from the work date an inbound transaction can occur to potentially trigger adjustment of related outbound value entries. 

When setting a time option for automatic cost adjustment, you should therefore select one that balances your requirements for cost accuracy with the performance level of your database. Generally speaking; the shorter the time setting, the less accurate the cost information, but the better the database performance during posting. 

When an item's cost has been adjusted - automatically or manually, a check mark is placed in the Cost is Adjusted field on the item card and on any production order lines for the item.

With the following options you can specify if and when to adjust cost automatically when posting transactions:

Never - Costs are not adjusted when posting.

Day - Costs are adjusted if posting occurs within one day from the work date.

Week - Costs are adjusted if posting occurs within one week from the work date.

Month - Costs are adjusted if posting occurs within one month from the work date.

Quarter - Costs are adjusted if posting occurs within one quarter from the work date.

Year - Costs are adjusted if posting occurs within one year from the work date.

Always - Costs are always adjusted when posting, irrespective of the posting date.

Beware that the use low-level codes on production BOMs will improve database performance during automatic cost adjustment.


What is the purpose of the AP - Accrual Inventory Account

The AP-Accrual Account is a liability account the software uses to hold your item’s cost when you Receive Inventory without a bill. 

Let’s say you have received items from a Vendor, but he has not yet sent you the bill. If you would like to sell these items, you need to Receive them into inventory. The software allows you to receive into inventory without a bill. 

When you receive inventory, the software will put the items into inventory (debit) and credit the Inventory Accrual account. 

When you eventually record the bill, the Inventory Accrual will be zeroed out (debited) and moved to your regular Accounts Payable account.