Adjusting Cost on Inventory Transactions in D365 for Finance and Operations: Part I
Posted on: November 6, 2017 | By: Jarrod Kraemer | Microsoft Dynamics AX/365
Authored by: Rosey McAdams
How many of you have ever run into a scenario where a piece of your company’s inventory is received or issued at the wrong cost? Especially if you are operating using average cost, a small costing error on an inventory journal could have a major impact to the average cost of your goods being sold and in turn have a major impact on your cost of sales and revenue. While there is no way to ever resolve the problem of human error, Dynamics 365 for Finance and Operations provides an easy way to resolve any costing errors on posted inventory receipt transactions that will end up making it appear as though the cost error never even happened using the Inventory Closing and Adjustment form found in inventory Closing and Adjustment.
Let’s look at a simple scenario to explain the process. A user has discovered that there is a discrepancy between the physical inventory in your warehouse and the physical on-hand inventory in D365fO, the inventory physically on hand in the warehouse is 10 pieces while D365fO is showing 9. So, this user decides to make a physical inventory adjustment with an inventory adjustment journal to write up one piece of inventory. The cost of each of the other 9 pieces of inventory had an average cost of $100,000, that is until the inventory adjustment journal is posted, with the cost incorrectly entered as $100.00 by the user instead of $100,000. This very critical error is not noticed by your company until we go to sell one of these 10 pieces of inventory, once the sales order is invoiced, we notice that the amount going to the COGs account for this item is 90,010 as opposed to $100,000 as it should be, this is a $10,000 error hitting the books that needs to be reconciled! In the screen shot below you can see the resulting inventory transactions from the scenario described.
Now let’s look at how to fix an issue like this. The steps below will walk you through how to change the cost on a posted receipt transaction and then recalculate the cost on all issues of the inventory.
1) Navigate to Inventory Management > Periodic > Closing and Adjustment
2) Once the form opens up click on Adjustment > Transactions, since there is a specific transaction cost that we want to adjust.
3) Once the transaction adjustment form opens up you MUST click Select and choose your transaction selection criteria before any transactions will populate to be adjusted.
4) Enter your criteria, in my example below you can see that I am searing by a specific item number, and click OK. Note that you can only choose an inventory transaction Receipt status, this is because the system only allows you to make cost adjustments to receipts, not issues, the recalc job that we will do in a later step is what will adjust costs on any outbound issue of goods.
5) After you select your criteria the Adjust transactions form will now display all receipt transactions for the criteria that you entered. To make an adjustment to the cost on one of these transactions simply select the transaction and click the Edit button
6) You may now enter the amount you would like to adjust the transaction by in the Edit Now field, and then click Save.
7) You can now post the adjustment transaction by clicking the Post button, you can choose a date for the transaction. You may select a date in the past, potentially the original transaction date, or you can choose today’s date if that period is already closed.
8) After posting the transaction you will now see a posting transaction for the date that you posted the transaction in the Closing and adjustment screen
9) If you click Details > Settlements you will see the posted adjustment amount for the transaction.
10) If you navigate back to the inventory transactions on the item you will see that the amount on the transaction that we adjusted is now what we want it to be, however you will note that the sales order is still at the wrong cost price.
11) To adjust the sales order cost amount, you cannot make an adjustment directly to the transaction, however you can run the inventory recalc to recalculate the cost amount. To do so navigate back to the Close and Adjustment form and click on Recalculation
12) Select Item Number specification, to target just the item we are working with, and the date that you want to recalculate inventory through, you must go until at least the date that you made your adjustment and click OK.
13) Once the recalculation is posted it will show in the closing and adjustments screen, and you can look at the settlements once again, note that a settlement is made to the sales order transaction we are hoping to be adjusted.
14) If we now navigate back to the inventory transactions we can see that all inventory transactions are now at the cost we want them to be.