Block 3:
The column section is probably the most important setup block of the inventory value report. Due to its importance, the different elements that can be setup in this block will be explained in detail based on several examples.
Inventory parameter
Activating the inventory parameter ensures that financial and physical inventory quantities and amounts are incorporated into the inventory value report. Please note that – from a finance & controlling perspective – the total inventory value is usually made up of the sum of the physical and financial amounts, as the risk of loss by chance and transfer usually shifts once goods enter or leave the company.
In respect to the inventory value parameter you might experience situations where the inventory value report shows you negative physical and/or financial amounts. This often happens when transactions are backdated or entered (too) late. The following example shows you an example of this phenomenon.
Example:
A company purchases 1000 pcs of an item that has a current cost price of 10 €/pcs for this very price. Due to delays in the warehouse and the accounts payable department, the purchase order packing slip is posted in September and the purchase order invoice is posted in October. In the meantime 500 pcs of the item have been shipped to a customer. The shipment occurred in July and the sales order invoice was posted in August. The following timeline summarizes the sequence of inventory transactions that were recorded in Dynamics AX.
Outcome:
In July, after recording the sales order packing slip, the inventory value report shows a negative physical quantity and amount.
In August, after posting the sales order invoice, the inventory value report shows a negative financial quantity and amount.
In September, the inventory value report still shows a negative financial quantity and amount but a positive physical quantity and amount resulting in an overall positive inventory value.
In October, the inventory value report finally shows the remaining positive financial quantity and amount.
WIP Parameter
Activating the WIP parameter allows you reconciling the following two production WIP accounts that are setup in the inventory posting form.
Please note that the activation of the following row parameters does also allow you reconciling other WIP Transactions such as labor cost transactions, indirect cost transactions and direct outsourcing cost transactions.
As an example, given the following production parameter setup (“item and category”), …
… the inventory value report does also allow you reconciling the WIP accounts that are setup at the cost category level.
Note: For reconciling WIP accounts, you do not have to use the inventory value report but can also use the production control balance reports illustrated in the next screenshot.
Deferred COGS & COGS Parameter
Within this subsection, I will explain the deferred COGS and COGS parameters together as they are related from a process flow perspective.
Activating the deferred COGS and COGS parameter allows reconciling the ledger accounts that have been setup in the following sections of the inventory posting form.
Example 1:
After activating the COGS parameter, the inventory value report shows a total value of 10 TEUR for the financial COGS amount.
If you compare this amount with the balance that can be identified in the General Ledger you will notice that there seems to be a difference of 300 EUR between the ledger transactions and the inventory transactions as illustrated in the following screenshot.
The underlying reason for this variance is that project related transactions are not included in the inventory value report.
In addition to project related inventory transactions, the following inventory transactions are not included in the inventory value report if you only activate the COGS / deferred COGS parameters:
- Transfer orders,
- Purchase order related transactions,
- Sales order picking list transactions.
Example 2:
The previously illustrated inventory value report does also show a deferred COGS amount of 314885.84 EUR.
As before, if you try finding this value in the General Ledger you will probably notice a “variance” (see the following screenshot).
The reason for this obvious difference is that the inventory value report shows values that are not limited to one single financial period. If you use the ledger transaction list report and not the trial balance list page, you are able to reconcile the amount shown in the inventory value report as illustrated in the following screenshot.
Note that you can also use the “shipped, not invoiced” Accounts Receivable report for reconciling the deferred COGS value shown in the inventory value report.
Unfortunately, the “shipped, not invoiced” report is not generally available for every country but can easily be made available through a change of the following country code parameter:
Best practice:
As illustrated in the examples before, for reconciliation purposes it is best setting up separate ledger accounts for each transaction type in the inventory posting and project posting form. Using the same ledger account for different groups – as illustrated in the next screenshot – can easily result in reconciliation problems.
Profit and loss Parameter
Activating the profit and loss parameter allows you reconciling the accounts that are setup in the profit and loss section of the inventory posting form (see the next screenshot). As a result, an inventory value report with this parameter activated allows identifying and reconciling inventory transactions that have been recorded through inventory adjustment and inventory counting journals.
Please note that activating the profit and loss parameter does not allow you identifying those inventory transactions that have been recorded through inventory movement journals as those journals do not make use of the profit and loss accounts that have been setup in the inventory posting form.
Hint: Analyzing inventory transactions that have been recorded through inventory adjustment journals can offer you a first sign whether or not something is possibly wrong with your warehouse processes.
A last remark on the ledger accounts that can be setup in the column section:
As illustrated before, setting up a ledger account in the yellow highlighted section of the inventory value report allows you a direct comparison of the inventory value amounts with the general ledger amounts. A prerequisite for this comparison is that summary accounts are setup in the Chart of Accounts as only summary accounts can be selected here.
…to be continued in the next post.
