Business Central: Expected Costing for Procurement Management

Consider a scenario where finance team requires to inquire about the inventory value that is purchased but purchase invoice is not yet still posted.

1. Search for inventory setup and select the relevant link

Enable the Expected Cost posting check box.

The system will give the warning to select yes.

2. Create two accounts in the chart of accounts as following

• Inventory accrual account (Interim) (5510): The nature of this account will be a liability. This account will act as a parking account for vendor balances for which receipts have been posted but no purchase invoice is posted.
• Inventory account (Interim) (2111): The nature of this account will be an asset. This account will act as a parking account for inventory balances when purchase receipts are posted but no purchase invoice is posted.

When purchase receipt will be posted the following double entry will be passed:

Dr Inventory account interim (2111)

Cr Inventory accrual account interim (5510)

3. Configure the above 2 created accounts with the following posting setups

• General Posting Setup (Inventory Accrual account (Interim), 5510): Search for general posting setup and open the relevant link. Since I am using vendor with general business posting group as ‘Exports’ and using the item whose General product posting group as ‘Retail’. So I will configure the inventory accrual account (Interim) with a relevant combination
  

• Inventory Posting Setup (Inventory Account interim (2111)): Search for inventory posting setup and open the relevant link. Since I will be using the Combination of location ‘East’ and Inventory posting group ‘Resale’. So I will configure the Inventory account (Interim) for relevant combination
  

4. Let’s create a simple purchase order and see how the general ledger entries are created at time of posting purchase receipt and reversed at time of posting the purchase invoice

• Search for a purchase order and create a purchase order. Enter the vendor details and select an item as shown.
  

From the header select posting a new box will open which will ask either to receive, invoice or receive an invoice.

Select receiving and click ok to post the receipt

5. Navigate to receipts from the purchase order header
   

click on receipts and select the relevant receipt and click on find entries

Click on GL entries to see the relevant entries

Here you can see the following general ledger entries

Dr Inventory account interim (2111)

Cr Inventory accrual account interim (5510)

6. Lets post the purchase invoice to see that how these accounts are reversed. Enter the invoice number on Purchase Order and from the post button on the purchase order header. post the purchase invoice
   

Select the invoice and click ok

Navigate to the posted purchase invoice, and then navigate to the invoice general ledger entries

Select GL to see the general ledger entries

If we look properly we can see that the General ledger entry created for accruals is reversed at time of posting purchase invoice

The accrual inventory and accrued vendor balance is reversed as following

Dr Inventory accrual account interim (5510)

Cr Inventory account interim (2111)

7. Summary: So the purpose of expected cost posting from a procurement perspective is to book accrued balances for inventory and vendor. So that the Finance manager or finance team can see and inquire that how many services and goods have been received from the vendor but invoices are not generated or sent to the vendor
8. Note:

• In the case of creating a Purchase return order, the general ledger entries for accrual accounts will be generated in a reverse manner.
• Ideally, the net balance of the accrual accounts will be zero if all purchase orders are processed completely in a specific period.
• Such general ledger entries for accrual accounts are not created when creating direct-purchase invoices or invoice journals for vendors.
• Expected cost posting check is enabled on company level which will enable accruals both for Sales and Purchase.
• If this check is not enabled then no such accrual entries are created by system both for Sales and Purchase.

 

Author: Imran Khan