Expected costs in Business Central Ing.J.Skorkovský,CSc. MASARYK UNIVERSITY BRNO, Czech Republic Faculty of economics and business administration Department of Business Management User settings Expected cost setup •It is an estimated cost in the case of a purchase, before the actual invoice for the goods purchased is received. •You can temporarily post the expected (estimated) cost to both the Stock account and the Revenue account in the general ledger. •After posting, a value entry is also created (for goods above the item ledger entry) with the Expected value •This Expected value will affect the value of the stock but is not posted to the general ledger unless you allow the program to do so. See Inventory Setup (Expected Cost Posing=Yes). •The expected cost is posted to a temporary account. This account must be set up in the system for the appropriate accounting group (see table) • • In this model we will use manual Inventory Cost adjustment process. Unlike in some models provided last term. Therefore, there is no Automatic Cost accounting field checked Expected costs setup 1st part If the Expected cost posting is checked (ticked), then Business Central post the expected costs to a temporary (interim) General ledger account. Expected costs setup 2nd General Business Posting Groups setup Interim = Prozatímní účty If you don't have a combination of Domestic and RESALE, use the NEW icon and Suggest Accounts Inventory Posting Groups setup Interim = Prozatímní Relations Inventory posting Group and Location New item creation (use predefined template) Purchase order – Expected Purchase price is 100 We don't know the actual purchase price yet So expected cost could be 100, but who knows for sure that !!!! Purchase line after Receive posting only Item ledger entries after posting Manual Inventory adjustment process is commented on the next slides Only the expected value is given in the entry. The actual cost is therefore zero at that moment After delivery related to expected Cost Part of the item card Unit Cost =0 !. Before Inventory Cost Adjustment Process Click Inventory value - after 1st Inventory cost adjustment and posting Inventory value to General Ledger In Microsoft Dynamics 365 Business Central, adjusting cost inventory refers to the process of making changes to the recorded cost of inventory items to reflect their actual or adjusted costs accurately. This can be necessary for several reasons, such as changes in the purchase price, additional costs associated with acquiring or storing inventory, or other factors that affect the Cost of Goods Sold (COGS) – NNPZ v češtině and the value of inventory on your balance sheet. COGS (home study) •Cost of goods sold (COGS) includes all of the costs and expenses directly related to the production of goods. •COGS excludes indirect costs such as overhead and sales and marketing. •COGS is deducted from revenues (sales) in order to calculate gross profit and gross margin. Higher COGS results in lower margins. •The value of COGS will change depending on the accounting standards used in the calculation. • • Gross Profit and Gross Margin I. •Gross Profit and Gross Margin are both essential metrics used to assess a company’s profitability, but they represent different aspects of financial performance: • • •Gross Profit: oDefinition: Gross profit is the total revenue minus the cost of goods sold (COGS). It represents the actual profit made from producing and selling products before deducting any other expenses. oCalculation: •Gross Profit=Revenue−COGS oExample: If a company has $500,000 in revenue and $300,000 in COGS, the gross profit would be $200,000. • Will be used in next slide Gross Profit and Gross Margin II. •Gross Profit and Gross Margin are both essential metrics used to assess a company’s profitability, but they represent different aspects of financial performance: • • • Gross Margin: oDefinition: Gross margin is the percentage of revenue that exceeds the COGS. It shows how much of each dollar of revenue is retained as gross profit. oCalculation: •Gross Margin=(Gross Profit/Revenue​) × 100 oExample: Using the same figures, if the gross profit is $200,000 and the Revenue is $500,000, the gross margin would be 40%. •Margin-marže •Profit = zisk •COGS=NNPN = Náklady na prodané zboží • • Result of manual inventory cost adjustment This change (Inventory Cost Adjustment) has not yet been reflected in the General Ledger (will be) Item ledger entries & Value entries Value entries –description I. •In Microsoft Dynamics 365 Business Central, value entries play a crucial role in tracking and managing the financial aspects of inventory transactions. Here are the key functions of value entries: • •Reflect Changes in Inventory Value: •Value entries record the financial impact of inventory transactions, such as purchases, sales, adjustments, and revaluations. Each entry that affects the inventory value creates one or more value entries. • •Link to Item Ledger Entries: •Each value entry is associated with an item ledger entry, which records the quantity changes in inventory. This relationship ensures that both the quantity and value aspects of inventory are accurately tracked. • •Support Costing Methods: •Value entries support various costing methods (e.g., FIFO, LIFO, Average) by providing detailed cost information for each inventory transaction. It helps in the accurate calculation of the COGS. • Value entries –description II. •In Microsoft Dynamics 365 Business Central, value entries play a crucial role in tracking and managing the financial aspects of inventory transactions. Here are the key functions of value entries: • •Enable Revaluation: •Value entries allow for the revaluation of inventory items. If the value of an item changes due to market hase to be changed, you can post revaluation entries to update inventory value accordingly • •Facilitate Financial Reconciliation: •At regular intervals, value entries are posted to the general ledger to reconcile inventory transactions with financial accounts. • • • Posting inventory cost to General Ledger 1st step It must be checked ON, otherwise the result of the Inventroy cost adjustment will not appear in the General Ledger Here it is set to OFF Posting inventory cost to General Ledger 2nd step This Inventory value message is displayed automatically General Ledger entries display 1st part General Ledger entries display 2nd part Account 5510 -> Inventory Adjustment (Interim), Retail Invoicing at the actual price •The purchase price 100 is overwritten in the purchase line to the new actual price 150 and before modifying purchase line it is necessary to Reopen purchase order Posting Purchase order Only Invoice Ctrl-F7 The item have already been received Attention! Here we have still checked 3rd option Receive and Invoice 2nd manual inventory cost adjustment Actual cost in Item ledger entry is updated ! Not visible here. Instead of one Value Entry , another (additional) Value Entry was created. Posting Inventory Cost to General Ledger Results : Average Cost Calculation overview General Ledger entries Selling and Posting on interim accounts •It is about accounting for the Costs of Good Sold (COGS) and movements of inventory costs on interim accounts in the event of a sale before the actual invoicing process takes place. • •It is therefore also a general ledger entry presented in this case. • •It might be an example of a deferred sales (odložený prodej) in case of combined deliveries due an unexpected delay in the invoicing of multiple deliveries. General Business Posting Groups setup It has already been presented Inventory Posting Groups setup It has already been presented Sales Order •Unit Price does not play any role here! •We track only the Cost of Item and related movement on the inventory accounts Sales Order before its modification Unit cost filed must be additionally displayed with the help of the Sales line Personalize feature The value Cost = 150 is taken from the earlier example Sales order line after modification 150->180 In this case, original Unit Cost =150 was change to the new expected Unit Cost=180. We posting Sales Order as Shipped only. Average cost calculation from Item card Already booked purchase order Item ledger entry and value entry after shipping Ctrl-F7 1st part of ILE 2nd part of ILE Inventory cost adjustment process •Step by step, we have to start inventory adjustment and subsequent posting costs to the general ledger Inventory value To provide that little bit of extra value to our fabulous company !!!! Item entries before invoicing Sales order Ctrl-F7 General ledger entries before Sales Order invocing It is worth saying here, that we did not adjust the expected purchase price of 180 before posting the Sales Order. This cost has remained the same in this model. In the next model we will illustrate a difference procedure. All results after invoicing and inventory cost adjustments 1st part All results before and after invoicing and inventory cost adjustments 2nd part This second part is suggested for the home study and will not be reviewed in the classes It is only a completion of all the options associated with the expected costs Second sales model with expected acquisition price New item creation User settings for this model Purchase items with the Item journal F9 No expected cost is taken into account Item Ledger Entry & Average Cost Calculation Inventory cost adjustment General Ledger entry Sales Order model concept Unit Cost =150 (actual cost) Sales line before 1st modification Unit Cost =180 (expected cost) Sales line after 1st manual modification (150->180 manually) Ship only Inventory Cost Adjustment and Post Inventory Costs to G/L Sales line after 2nd modification (after Sales Order was re-open ) Unit Cost =111 (new actual cost instead added manually ) Invoice only Inventory Cost Adjustment and Post Inventory Costs to G/L Sales Order line and Ship posting F9 Inventory Cost Adjustment and Post Inventory Costs to G/L Sales line after posting shipping (1st and 2nd part of ILE) Item ledger entries and value entry The procedure for adjusting and booking costs is the same as in the previous examples, so it is not shown here Item ledger entries and value entry The procedure for adjusting and booking costs is the same as in the previous examples, so it is not shown here General Ledger entries 2nd Sales line Modification – new actual unit cost Before modification it is required to Re-open the Sales Order Another change after delivery and before posting Final results 1st part The procedure for adjusting and booking costs is the same as in the previous examples, so it is not shown here 150-39=111 Final results 2nd part Final results 3rd part 2111 2110 2112 7190 39 111 150 150 39 111 Interim account 39+111=150 39+111=150 Average Cost Calculation Overview Statistics of posted invoice with different new actual unit cost (111) Statistics of posted invoice with former actual unit cost from item card (150) Conclusion •Before the model, the same procedure was done for the same item but with a different number and the unit cost was not modified and remained at 150. • •Meaning, that the modification of the unit cost affected the profit before cost adjustment only and it did not affect the unit cost on the item card End of the section Expected costs