Inventory Reconciliation 13

Visual EstiTrack™ Understanding Inventory Reconciliation
Visual EstiTrack™
Understanding Inventory Reconciliation

(Supplement)
(Updated 2013)
Henning Industrial Software, Inc. Page 0 Visual EstiTrack™ 06/2013

OVERVIEW: Methods of Reconciling Inventory Values
Most companies that maintain raw material, work in process and finished goods inventories post net
changes to these asset accounts on a monthly basis. The net changes posted to these accounts represent
the change in value from one month to another.
Not every business uses the same method for calculating inventory values and net changes. Some
businesses simply perform physical inventory counts each month for each item within each of the three
inventory classifications (i.e., Raw Material (RM), Work in Process (WIP) and Finished Goods(FG)) to
determine month ending values of these inventories. They then compare the current month’s values to the
previous month’s values to determine the net changes in these inventory accounts and use the general
journal to post the net changes calculated. There are a wide variety of methods that businesses use to
calculate actual inventory value. This includes using actual cost, standard cost or at times a percentage of
the item’s selling price.
Actual cost is typically used on valuation of raw material (i.e., directly purchased items) because this cost
can be easily determined by the purchased cost of the item.
What is more complicated for businesses is the determination of WIP and FG values when manufactured
“added value” and overhead expenses are added to the cost of the raw materials. Many companies want
to calculate their work in process and finished goods cost at actual value but lack the discipline or
resources required to accurately account for each added value cost and overhead component.
Only through the very detailed tracking and reporting of each added value and overhead component can
an accurate cost value be derived. The four major component costs tracked in Visual EstiTrack include
material, labor, burden/overhead and other (outside processes and miscellaneous costs). The shop order is
the container for recording these component costs. It is only through the accurate capturing of these
component costs that an accurate actual value is calculated and assigned to the WIP and FG items being
produced.
This means all labor hours for the shop order must be accurately reported; both employee labor and
workcenter burden/overhead rates must be accurately defined and maintained. In addition, all raw
material and manufactured components must be accurately consumed and all other costs entered and
assigned to the appropriate shop order to get a complete and accurate actual cost.
If a business fails to completely capture and enter any of the actual cost details (i.e.,
material, labor, burden/overhead and other costs) the calculated actual cost of an item will
be inaccurate thus distorting the final WIP and FG inventory valuations.
Visual EstiTrack provides a formalized method for tracking actual job costs through shop order time and
materials reporting. Visual EstiTrack’s Inventory Monthly Reconciliation screen provides the bookkeeper
an interactive worksheet designed to summarize actual cost details in order to generate the monthly net
changes accounting entry for RM, WIP and FG inventory values. In addition, the Inventory Monthly
Reconciliation screen will calculate the movements of cost of goods sold (i.e., absorption of costs into
WIP and recognize the costs of goods shipped/sold).

If a business lacks the discipline to accurately record shop order component costs then the
Visual EstiTrack’s Monthly Inventory Reconciliation screen cannot be used and an
alternative manual accounting method for Raw Material, WIP and FG valuations must be
used.
Alternative manual inventory accounting methods include using a standard cost for finished good items,
using a standard cost for work in process items based on a percentage of completion or using a percentage
of the selling price of an item.
In the end, there are a wide variety of methods used by businesses to valuate inventory and it
is your responsibility to determine which method works best for your company.
The remainder of this document describes Visual EstiTrack’s formalized Inventory Monthly
Reconciliation method of calculating actual inventory values and cost of goods sold and the various
options available.
PROCEDURES: Monthly Inventory/Cost of Goods (COG) Adjustments
To accurately reflect profit and loss on the Income Statement it is important that you make appropriate
monthly adjustments to move expenses back and forth between the Income Statement and the Balance
Sheet. The goal is to have the expenses that are reflected in cost of goods occurring during the same
fiscal period as the sales of the goods sold.
While many accountants choose to calculate and enter these monthly adjustment entries manually, Visual
EstiTrack’s Inventory Reconciliation Screen provides the means to calculate and generate the necessary
monthly adjustment entries directly via the general journal enabling posting to the general ledger.
The following outlines the typical monthly procedure used to make inventory and cost of goods general
ledger adjustments. These monthly adjustments are used to “absorb” expenses from the Income
statement and transfer to the Balance Sheet’s WIP account for shop orders that are in process. Visual
EstiTrack’s shop orders track all WIP component costs (i.e., direct labor, burden/overhead, material and
other subcontracting/miscellaneous costs) that occur during the life of the shop order.
These summarized component costs are used to move costs from the Balance Sheet inventory accounts
(i.e., either FG if you are using FG inventory or WIP if you are not using FG Inventory) to the Income
Statement’s cost of goods sold accounts when FG items are shipped/sold or when a WIP to COGS shop
order is closed to match these expenses with the shipment/sales of items actually sold during the month.
In Visual EstiTrack™ these adjustment entries must be made as monthly general journal entries.
Visual EstiTrack™ supports a wide variety of inventory accounting methods. It is important that you
determine your type of business operation to determine which inventory accounting method applies to
you. For example, some businesses don’t track Raw Material or Finished Good inventory. They simply
buy directly to WIP (i.e., shop orders) and then ship directly from WIP without reporting a finished good
item. In this case, costs are reported directly to WIP via the shop order and then moved directly to cost of
goods sold from WIP when the item is shipped/sold or when the shop order is closed. In other cases,
businesses formally track Raw Material, WIP and FG inventory and all the movements between each
inventory account. While other businesses use a combination of these methods.

Let’s take a closer look at Visual EstiTrack’s Inventory Reconciliation criteria screen and options.
Inventory Reconciliation Criteria Fields and Options defined
The Reconciliation Criteria tab allows the user to define the accounting fiscal period, business specific
options to customize the cost accounting methods and specific general ledger account numbers used to
generate the general journal monthly entries. Following is a description of each field and option.
Figure 7a Inventory Monthly Reconciliation – Reconciliation Criteria
Accounting Fiscal Month and Year

Provides selection of the Accounting Fiscal Month and Year to reconcile inventory and generate the
appropriate General Journal Entry.
Accounting Division / Accounting Department

Provides selection of the specific Accounting Division / Department to reconcile inventory and generate
the appropriate Division / Department General Journal Entry. These fields are available upon checking the
Adjust Inventory by Division / Department and/or the Adjust Cost of Goods Sold by Division /
Department checkboxes. Selecting a Division and Department will calculate using transactions assigned
to the selected Division / Department combination. Selecting a Division only will calculate using
transactions assigned to the selected Division and all Departments of the Division. Selecting a
Department only will calculate using transactions assigned to the selected Department and all Divisions
the Department belongs to. And leaving both fields blank (right-click on the field to clear) will calculate
all transactions of the company. This provides the ability to generate Division / Department entries when

the accounts for each Division / Department have different account numbers. The Accounting Division
and Departments are entered in Visual Books via the Tables submenu.
Default General Ledger Account Numbers

Provides one time entry of default General Ledger account numbers used to generate the General Journal
Entries. Each Division / Department combination will have its own default account numbers. You can
use the same account numbers in multiple default entries to combine the account types into the same
general ledger account number.
Adjust Inventory Accounts by Division / Department

Check if you want to reconcile each Division/Department separately. This allows selection of an
accounting Division / Department to post the Inventory entries. The Raw Material and Finished Goods
items’ Inventory Division / Department combination is defined by the Product code assigned to each
Inventory item. The Work in Process item’s Inventory Division / Department combination is defined by
the Product code assigned to each Shop Order. Each product code is in turn assigned to an accounting
Division / Department.
Adjust Cost of Goods Sold by Division / Department

Check if you want to reconcile each Division/Department separately. This allows selection of an
accounting Division / Department to post the Cost of Goods Sold. The Raw Material and Finished Goods
items’ Cost of Goods Sold Division / Department combination is defined by the Product code assigned to
each Inventory item. The Work in Process item’s Cost of Goods Sold Division / Department combination
is defined by the Product code assigned to each Shop Order. Each product code is in turn assigned to an
accounting Division / Department.
Use Total Shop Order Costs Calculation Method

The Total Shop Order Cost Calculation Method calculates the per unit cost of each produced item by
accumulating the costs for each operational step and dividing by the quantity produced by each operation.
The unit operational step costs are totaled and result in the per unit produced cost. Remaining
accumulated shop order costs, net of the produced items, are reported as Work In Process (WIP)
Inventory supported by the WIP Inventory Valuation Report.
Use WIP Journal for Shop Order Costs Calculations

WARNING: Do not use this special option unless specifically advised by Henning Software.

Additional Inventory Monthly Reconciliation Defaults are available by clicking the Inventory
Reconciliation Defaults button. Default options are described below.
Figure 7b Inventory Monthly Reconciliation Defaults
Post Raw Material Inventory by Distribution Codes

Check if you separate the Raw Material Inventory account into multiple sub-accounts. This option posts
to Raw Material based on the item’s Distribution Code. Each Distribution Code can be assigned a Raw
Material account number. If the Distributions Code’s Raw Material account number is blank, that item’s
transactions are posted to the default Raw Material account number entered on the Reconciliation Criteria
screen. Multiple Distribution Codes can have the same Raw Material account number. [Figure 7b.1]
Post Finished Goods Inventory by Product Codes

Check if you separate the Finished Goods Inventory account into multiple sub-accounts. This option
posts to Finished Goods based on the item’s Product Code. Each Product Code can be assigned a
Finished Goods account number. If the Product Code’s Finished Goods account number is blank, that
item’s transactions are posted to the default Finished Goods account number entered on the
Reconciliation Criteria screen. Multiple Product Codes can have the same Finished Goods account
number. [Figure 7b.2]
Post Other Inventory by Product Codes

Check if you separate the Other Inventory account into multiple sub-accounts. This option posts to Other
Inventory based on the item’s Product Code. Each Product Code can be assigned an Other Inventory
account number. If the Product Code’s Other Inventory account number is blank, that item’s transactions
are posted to the default Other Inventory account number entered on the Reconciliation Criteria screen.
Multiple Product Codes can have the same Other Inventory account number. [Figure 7b.2]
Post Cost of Goods Sold by Product Codes

Check if you separate the Cost of Goods Sold component accounts into multiple sub-accounts. This
option posts to the Cost of Goods Sold components (Direct Materials, Direct Labor, Burden / Overhead
and Other) based on the item’s Product Code. Each Product Code can be assigned Cost of Goods Sold
account numbers for Materials, Labor, Burden and Other. If the Product Code’s Cost of Goods Sold
component account number(s) is blank, that item’s transactions are posted to the default Cost of Goods
Sold component account number(s) entered on the Reconciliation Criteria screen. Multiple Product
Codes can have the same Cost of Goods Sold account numbers. [Figure 7b.2]
Post Scrap Reimbursements by Product Codes

Check if you separate the Scrap Reimbursements accounts into multiple sub-accounts. This option posts
to the Scrap Reimbursements account based on the item’s Product Code. Each Product Code can be
assigned a Scrap Reimbursements account number. If the Product Code’s Scrap Reimbursements account
number is blank, that item’s transactions are posted to the default Scrap Reimbursements account number
entered on the Reconciliation Criteria screen. Multiple Product Codes can have the same Scrap
Reimbursements account number. [Figure 7b.2]
Post Rework to Rework Cost of Goods Sold Accounts

Check if you are posting rework shop orders to separate rework cost of goods sold accounts. If a shop
order is a rework order, indicated by checking the Rework checkbox on the shop order, the generated
General Journal entry will use the Rework Cost of Goods Sold components account numbers entered on
the Reconciliation Criteria screen under this checkbox instead of the standard Cost of Goods Sold
component account numbers. [Figure 7b.4]
Exclude Inventory Purchases portion of entry

Check if you directly buy to the inventory accounts when recording the vendor invoice. This option
excludes the Materials Purchase Receipts portion of the General Journal entry to avoid double posting the
material receipts when the Distribution Code’s Purchases (Uninvoiced) account number references the
inventory general ledger account rather than using a formal purchases or uninvoiced material receipts
account. [Figure 7b.5]
Exclude Direct Work In Process COGS portion of entry

Check if you are posting cost of goods sold via the customer invoice and sales journal (option in the
company table in Visual Books). This option excludes the Cost of Goods Sold components portion of the
General Journal entry to avoid double posting the sales/shipped component costs of the Product code’s
Cost of Goods Sold component costs (Material, Labor, Burden and Other) that are posted via the
Customer Invoice. [Figure 7b.6]
Exclude Other Inventory from Reconciliation

Check to exclude Other Inventory from the Inventory Reconciliation process. Inventory types other than
FIN, RAW and WIP are classified as ‘Other’. Other costs also include subcontract services such as
plating or heat treatment. This option will prevent ‘other’ costs from being included in Work In Process
Inventory therefore recognizing the costs as expense at the time of receipt.

Post COG Based on Source Inventory Transaction

Check to post cost of goods using the Distribution/Product Code from the source transaction, overriding
the Distribution/Product Code in the inventory maintenance screen. If the source transaction does not
have a Distribution/Product Code, transactions are posted per the default Distribution/Product Code in the
inventory maintenance screen. [Figure 7b.7]
Override Product Code’s Division/Department/Inventory G/L No. with Inventory Location’s

Division/Department/Inventory G/L No.
Check to post cost of goods using the Division/Department referenced in the Inventory Location table,
overriding the Inventory Product Code’s Division/Department Inventory G/L Number. [Figure 7b.8]

Figure 7b.1 Distribution Code Table – Post Raw Material Inventory by Distribution Code

Figure 7b.2 Product Code Table – Specific COGS and Absorption Accounts
Figure 7b.3 Distribution Code Table – Standard Inventory Reconciliation Setup

Figure 7b.4 Set Defaults to Post Rework to Rework Cost of Goods Sold Accounts
Figure 7b.5 Exclude Inventory Purchases portion of entry

Figure 7b.6 Visual Books Company Table Option – Posting COGS directly from Invoice
Figure 7b.7 Post COG based on Source Inventory Transaction Product/Distribution Code

Figure 7b.8 Override Product Code’s Division/Department/Inventory G/L Number with Inventory
Location’s Division/Department/Inventory G/L Number

Let’s take a closer look at the components of Inventory Reconciliation.
(A) ABSORBING COSTS TO Work In Process (WIP) for Open/Active Shop Orders
1) DIRECT BUY MATERIALS (Items bought directly to the Shop Order)

a. Tie the purchase order line item directly to the Shop Order and Cost of Goods by entering
the appropriate shop order number and COGS GL account number into the line item of
the Purchase Order. Be sure to select a non-inventory type Distribution Code.
b. Use the receiving screen to receive in the line items of a Purchase Order.
c. Tie vendor invoices directly to the received PO Line Items using the “Get Receipts”
button found on the Vendor Invoice maintenance screen. This marks the receipt records
as being invoiced and defaults the received quantity and appropriate COGS account
number into the vendor invoice to prepare it for posting to the general ledger.
d. The WIP account net change is adjusted through the Inventory Reconciliation process.
2) INVENTORIED RAW MATERIAL

a. Do NOT tie the purchase order line items to the shop order, but record the line items to
the Uninvoiced Receipts GL account. Be sure to select an inventory type Distribution
Code.
b. Use the receiving screen to receive in the line items of the Purchase Order.
as being invoiced and defaults the received quantity and Uninvoiced Receipts account
d. The Raw Materials account net change is adjusted through the Inventory Reconciliation
process.
3) MOVING COSTS FROM RAW MATERIAL or FINISHED GOODS TO WIP

a. Movements of costs from RAW MATERIAL or FINISHED GOODS to WORK IN
PROCESS are generated from shop order job card inventory usage activity during the
month.
b. The Inventory Reconciliation module will create a GL Journal Entry reflecting this
inventory movement. Use the Inventory Journal Report, selecting the “Used in
Production” transaction type and either the RAW MATERIAL or FINISHED GOODS
inventory type to review and support the GL journal entry.
c. This journal entry will Credit (reduce) either the Raw Material or the Finished Good GL
Account and Debit (Increase) the WIP Inventory Account.
4) LABOR (Direct Labor on Shop Orders)

a. Direct Labor payroll is typically expensed on the Income Statement through the posting
of the Payroll journal. It is then offset (removed as an expense) and transferred to the
WIP inventory account on the Balance Sheet based on the Job Card direct labor activity
occurring during the month.
b. Most clients achieve this movement by creating a LABOR ABSORPTION account. The
absorption account is used to transfer direct labor expenses from the income statement to
the balance sheet’s WIP inventory account.
c. The Inventory Reconciliation module will create a GL Journal Entry reflecting this Direct
Labor expense movement into WIP inventory. Use the Production Costs Report to
review the job cards executed during the selected month and support the GL journal
entry.

d. This journal entry will Credit (reduce) the Labor Absorption Account and Debit
(increase) the WIP Inventory Account.
e. The net effect will reduce payroll expense for the month by the direct labor performed on
active shop orders, thus transferring those direct labor expenses from the income
statement to WIP Inventory on the balance sheet.
5) BURDEN
a. Burden (overhead such as office salaries, rent) is typically expensed on the Income
Statement but then offset (removed as an expense) and transferred to the WIP inventory
account on the Balance Sheet based on the Job Card activity occurring during the month.
b. Most clients achieve this movement by creating a BURDEN ABSORPTION account.
The absorption account is used to transfer burden expense from the income statement to
the balance sheet’s WIP inventory account.
c. The Inventory Reconciliation module will create a GL Journal Entry reflecting this
Burden expense movement into WIP inventory. Use the Production Costs Report to
review the job cards executed during the selected month and support the GL journal
entry.
d. This journal entry will Credit (reduce) the Burden Absorption Account and Debit
(increase) the WIP Inventory Account.
e. The net effect will reduce burden expense for the month by the burden carried on active
shop orders, thus transferring those burden expenses from the income statement to WIP
Inventory on the balance sheet.
6) OUTSIDE (SUBCONTRACTED)
a. Tie the purchase order line item directly to the Shop Order and Cost of Goods by entering
the appropriate shop order number and COGS account number into the line item of the
Purchase Order. Be sure to select a non-inventory type Distribution Code.
b. Use the receiving screen to receive in the line items of a Purchase Order.
as being invoiced and defaults the received quantity and appropriate COGS account
d. The WIP account net change is adjusted through the Inventory Reconciliation process.
(B) MOVING FROM WIP TO COG (EXPENSES)
Many clients do not use Finished Goods Inventory but rather ship directly out of Work In Process (WIP).
It is critical that ALL costs are entered against the Shop Order before closing the Shop Order to ensure
accurate reporting.
1) The Inventory Reconciliation module will create a GL Journal Entry reflecting this movement
from WIP Inventory back to the Cost of Goods accounts. Use the Cost of Sales Analysis Report
or one of the Work in Process Reports to review component costs (ie: labor, burden, material and
other) of the shop orders that closed during the selected month and support the GL journal entry.
2) The journal entry will Credit (reduce) the WIP Inventory Account for the total cost of the shop
orders closed during the month and Debit (increase) the appropriate Cost of Goods expense
accounts for the same amount.
3) This entry aligns the timing of the Cost of Goods to be reflected in the same fiscal period as the
Sales of those items.

(C) MOVING FROM WIP TO FINISHED GOODS
Clients who make to stock and sell from finished goods inventory or use inventory numbers to track and
record production, will need to transfer costs from WIP Inventory account to the FINISHED GOODS
Inventory account.
It is critical that ALL costs are entered against the Shop Order before closing the Shop Order to ensure
proper inventory valuation.
from WIP Inventory into the Finished Goods Inventory Balance Sheet accounts. Use the Cost of
Sales Analysis Report or one of the Work in Process Reports to review component costs (i.e.
labor, burden, material and other) of the shop orders that closed during the selected month and
support the GL journal entry.
2) The journal entry will Credit (reduce) the WIP Inventory Account for the total cost of the shop
orders closed during the month and Debit (increase) the Finished Goods Inventory account for the
same amount.
3) The net effect of this transaction is that all costs remain on the Balance Sheet; they simply move
from one asset account to another (i.e. from the WIP Inventory Account to the Finished Goods
Inventory Account).
(D) MOVING FROM FINISHED GOODS TO COG (Expenses)
Clients who sell from Finished Goods Inventory will need to transfer costs from the Finished Goods
Inventory account to Cost of Goods expense accounts to reflect the sales.
from Finished Goods Inventory into the Cost of Goods expense accounts. Use the Inventory
Journal Report, select ‘Show Component Costs’ option and filter by ‘Sale/Shipped’ transaction
type to review the component costs of the goods sold during the selected month and support the
GL journal entry.
2) The journal entry will Credit (reduce) the Finished Goods Inventory Account on the Balance
Sheet and Debit (increase) the appropriate Cost of Goods expense accounts on the Income
Statement by debiting the corresponding values of Labor, Burden, and Material.
3) This entry aligns the timing of the Cost of Goods to be reflected in the same fiscal period as the
Sales of those items.
(E) TEMPORARY LIABILITY ACCOUNT (Uninvoiced Receipts)
It is quite common that goods are received into inventory (i.e., Raw Material and WIP Inventory) prior to
receipt of the Vendor Invoice. Many clients want to reflect that future liability in the general ledger even
though the liability is not yet reflected in Accounts Payable.
1) Enter Temporary Liability GL Account (Uninvoiced Receipts) in all Inventoried Distribution

Codes in the ‘Purchases (Uninvoiced) GL Number’ field. [Figure 7b.1]
2) The Inventory Reconciliation module will create a GL Journal Entry reflecting inventory receipts.
The journal entry will Debit (increase) the Inventory Account and credit (increase) the
Uninvoiced Receipts GL account.
3) Entry of the Vendor invoice will Debit (decrease) the Uninvoiced Receipts Account and Credit
(increase) the Accounts Payable GL Account. Need Uninvoiced Receipts Docs

Inventory Reconciliation Example: Processing costs using Inventory Material
Verify entry of default G/L Chart of Accounts numbers.
For this example, we will use the Company Default to Calculate Finished Goods at Standard Cost until
the Shop Order is closed. When the Shop Order closes, actual costs will be calculated and update all
previous transactions originating from the Shop Order.

Let’s begin with “0” balances.
I’ve created job cards to complete the first operation.

Raw Material is consumed. Burden and Labor are absorbed. Costs move into WIP.
Let’s now take a look at the G/L Entries.

Next, I create a purchase order for heat treating and receive it in.
Notice the change in WIP and Other Direct Costs Absorption.

Completing the final operation, the shop order has produced inventory into Finished Goods.
Notice the costs being moved from WIP into Finished Goods at the Standard Cost.

This is what the G/L Entries would look like if we posted now.

When the Shop Order is closed, the Finished Goods Inventory is valued at Actual Cost.
When shipped, the Finished Goods Inventory value moves to Cost of Goods.
All costs have transferred from Inventory to Cost of Goods Sold, except a few pennies rounding.

Let’s look at the G/L Entries.
Below is the Sales/Cost of Sales recap:

Inventory Reconciliation Example: Processing costs – Direct Buy

Processing costs without using Inventory Material – Buy directly to the job.
Let’s begin with “0” balances.
Created purchase order for materials to go directly to a specific job and received it.

If you look at the G/L Entries you will see WIP Debited and Direct Costs Absorption Credited. Upon
Vendor Invoice entry, you will be Debiting Purchases in Cost of Goods and Crediting Accounts Payable.

Completing the final operation, the shop order has produced inventory into Finished Goods.
Notice the costs being moved from WIP into Finished Goods at the Standard Cost.
Let’s now take a look at the G/L Entries.

Below is the Cost of Goods recap based on Standard Cost:
When the Shop Order is closed, the Finished Goods Inventory is valued at Actual Cost.
When shipped, the Finished Goods Inventory value moves to Cost of Goods.
All costs have transferred from Inventory to Cost of Goods Sold.
Let’s look at the G/L Entries.

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Visual EstiTrack™ Understanding Inventory Reconciliation

Understanding Inventory Reconciliation

Henning Industrial Software, Inc. Page 0 Visual EstiTrack™ 06/2013

OVERVIEW: Methods of Reconciling Inventory Values

Henning Industrial Software, Inc. Page 1 Visual EstiTrack™ 06/2013

PROCEDURES: Monthly Inventory/Cost of Goods (COG) Adjustments

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Inventory Reconciliation Criteria Fields and Options defined

Figure 7a Inventory Monthly Reconciliation – Reconciliation Criteria

Accounting Fiscal Month and Year

Accounting Division / Accounting Department

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Default General Ledger Account Numbers

Adjust Inventory Accounts by Division / Department

Adjust Cost of Goods Sold by Division / Department

Use Total Shop Order Costs Calculation Method

Use WIP Journal for Shop Order Costs Calculations

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Figure 7b Inventory Monthly Reconciliation Defaults

Post Raw Material Inventory by Distribution Codes

Post Finished Goods Inventory by Product Codes

Post Other Inventory by Product Codes

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Post Cost of Goods Sold by Product Codes

Post Scrap Reimbursements by Product Codes

Post Rework to Rework Cost of Goods Sold Accounts

Exclude Inventory Purchases portion of entry

Exclude Direct Work In Process COGS portion of entry

Exclude Other Inventory from Reconciliation

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Post COG Based on Source Inventory Transaction

Override Product Code’s Division/Department/Inventory G/L No. with Inventory Location’s

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Figure 7b.3 Distribution Code Table – Standard Inventory Reconciliation Setup

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Figure 7b.5 Exclude Inventory Purchases portion of entry

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Let’s take a closer look at the components of Inventory Reconciliation.

1) DIRECT BUY MATERIALS (Items bought directly to the Shop Order)

2) INVENTORIED RAW MATERIAL

3) MOVING COSTS FROM RAW MATERIAL or FINISHED GOODS TO WIP

4) LABOR (Direct Labor on Shop Orders)

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(B) MOVING FROM WIP TO COG (EXPENSES)

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(C) MOVING FROM WIP TO FINISHED GOODS

(D) MOVING FROM FINISHED GOODS TO COG (Expenses)

(E) TEMPORARY LIABILITY ACCOUNT (Uninvoiced Receipts)

1) Enter Temporary Liability GL Account (Uninvoiced Receipts) in all Inventoried Distribution

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Inventory Reconciliation Example: Processing costs using Inventory Material

Verify entry of default G/L Chart of Accounts numbers.

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Let’s begin with “0” balances.

I’ve created job cards to complete the first operation.

Let’s now take a look at the G/L Entries.

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