An In-depth look at Item Charge Postings
Hi Readers,
In this blog post, we will have an indepth look at item charges functionality in the background.
Let’s consider a scenario where we run a tyre import business. When we bring in stock, we incur delivery charges to transport the tyres from the port to our main warehouse in the capital city.
However, along the route, we have a client whose shop is located before the city. The tyres are delivered to the shop and invoice sent via email.
To start off, I will post a PO of 500 tyres at a landed cost of 55 USD (129 KES) = 3,547,500 KES
The ledger entries would be updated as below. The purchase/direct cost account is set to the same account.
The item ledger will be updated as below - showing location as PORT and cost amount from the P.O
The value entries look like below.
We invoice our client for 50 tyres from our PORT location and transfer the 450 tyres via transfer order to our main warehouse.
The following GL accounts will be affected by the sale of 50 tyres at 9,500KES
The item ledger is updated as below after the sale.
The value entry for the sale is as below.
The transfer order is created, shipped and received once the tyres arrive at the capital center. The item ledgers are updated as below.
The vendor charges KES 100,000 for the delivery job. We create an invoice with an item charge to the purchase receipt.
The following GL accounts will be affected - (I have turned off automatic costing) - after posting.
I will run adjust cost / post cost job. On running the job completely we can see our purchase cost has increased from 3,547,500 KES to 3,647,500 KES
From the value entries, we can trace how it builds up to that below.
From above we can see that a value entry of 100,000 KES was added to the item ledger entry that increases the actual cost.
We can remember that we had already sold some stock before posting our item charge. The system also adjusts the cost of the sale upwards to reflect the change in cost from source. The COGs changes from 354,750 KES to 364,750 KES - (100,000 KES / 500 tyres purchased * 50 tyres sold)
The value entry showing the build up is as below.
The current cost of the remaining sock is also updated from 3,192,750 KES to 3,282,750 KES - (100,000 KES / 500 tyres purchased * 450 in stock)
The inventory control and COGs GL account are also updated at the chart of accounts.
Thats marks the end of our post.