Inventory Posting Cheat Sheet for Manufacturing in Microsoft Dynamics AX
Posted on: May 19, 2015 | By: Jarrod Kraemer | Microsoft Dynamics AX/365
Inventory is usually an organization’s largest asset, so it is essential to ensure that the value of our inventory is properly recorded and that this data is properly interpreted. If we have better insight into how much inventory we actually have we are able to keep less inventory on hand because we know that we have the right inventory for what we are actually selling. In the end we will make more revenue because we will not have to write down as much, if any, inventory.
In this blog we are going to look at how to appropriately configure inventory GL posting setup, exactly how this affects the way inventory transactions post to your GL, and finally what reports we can use to look at inventory values and how to reconcile your inventory subledger with your general ledger. Inventory posting setup is truly the backbone of your company’s inventory valuation. Proper setup and understanding is essential to ensuring accurate visibility into your inventory costs.
The first step in setting up your inventory posting is creating item model groups. Item model groups determine how you want your inventory transactions to integrate with your general ledger. In my example setup below you can see that both post physical inventory and post financial inventory are checked. It is highly recommended to set both of these to yes because it means that you are posting both product receipts and product invoices to your GL, making reconciliation much easier. If one or both isn't checked the subledger will register the transaction, but the general ledger will not.
In the above example you can also see that ‘Include physical value’ is checked. It is highly recommended that you set this to yes as well. This is especially important if you have a long period from receipt to invoice on POs. If you do not include physical value, all product receipts are not considered in the issue costs on the sales order. If you don’t check this box, for example, one month you could have full revenue and the next month you could have negative revenue when you invoice all of your receipts. (For standard cost and moving average you do not have a choice on this parameter.)
The second step is setting production control inventory posting parameters. In the screenshot below, you can see that both post picking list in ledger and post report as finished in ledger are checked. This is very important so that you have real time insight into what phase in the production process your inventory sits. Whenever raw materials are consumed the ledger will record the transaction and show inventory as WIP and when finished goods are issued into inventory, they will be recorded to the ledger as well (instead of all of this happening at once when the production order is ended).
The next step is actually setting up your item groups to determine what GL accounts your inventory transactions will post to. In the example below the item group is called Audio Raw Materials, I would suggest setting your item groups according to the way you categorize your inventory (i.e. separate groups for Raw Materials, Finished Goods, Packaging, Spare Parts, etc…). This will help you to pin point the value of each type of inventory/determine where problems are coming from more easily. You should also set up GL accounts to reflect each of these item groups. For example have an account for finished goods inventory and a separate account for raw materials inventory. You can even go a step further and create accounts for unvoiced (or not financially updated) inventory for each of your groups. For example, one account for finished goods inventory and one account for finished goods shipped, but not invoiced.
Sometimes it can be confusing how transactions actually post to the above accounts. It is important to understand what credits and debits are supposed to be taking place with each inventory transaction so that you can easily detect a problem. See the table below for what actually posts to each of the accounts set up above when specific inventory transactions take place.