Item Charge Posting Explained
Alfredo Iorio
Microsoft Dynamics 365 Business Central Trainer | Enabling Consultants and Users to Build Expertise & Drive Operational Excellence
In one of my LinkedIn posts, I wrote about Item Charge posting and how I realized that I needed a refresher in accounting posting.
Luckily, I have ex Finance Directors turned BC consultants in my network. One of them agreed to show me the accounting principles behind landed costs and how to set up item charges correctly in Business Central.
In this post, I describe what I learned, and I hope this will help you too.
Let's start with a quick recap:
Item charges are used in BC to allocate direct costs to purchases and sales of goods.
On purchases, item charges can be used to post landed costs that increase the value of your inventory and are passed to the COGS as itemized costs. On sales, an item charge is a non-inventoriable cost allocated to the sale.
Item charges are document lines in BC that can be used in purchases, sales, and invoices. Unlike a line of type G/L, the item charge must be applied to purchase, sales or transfer transactions (receipts or shipments).
However, the posting setup of item charges is critical if you want to post the amount with the correct nominal codes in your company's chart of accounts.
This is how to do it:
Create dedicated Gen. Prod. Posting Groups for your item charges. In the Cronus database, all item charges are set up with a generic SERVICES group. This setup is not ideal. You need at least a few dedicated codes, such as a FREIGHT Gen. Prod. Posting Group for your freight charges. Setup the Gen. Posting Setup for the product posting group of the item charge.?
This is where things might get a bit complicated:
There are at least two fields that you need to set up correctly so that your item charge will post to the correct ledger:
Let's take our new Freight posting group for an item charge Purchase Freight costs.
The first field to set up is the Purchase account in the Gen. Posting Setup. This field should point to an income statement account, typically a COGS account. This account will balance the AP credit entry when you post the invoice.?
The second field is the Direct Cost applied account. This field should be set up to the same account in the purchase. However, it can be a different COGS account if you want to see the credit and debit going to separate accounts. That's it. An item charge used on purchases only needs these two main fields to post correctly.
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You might wonder why I did not mention any inventory nominal code above. After all, didn't I say that an item charge "increases the value of your inventory"? Yes, this is where things get interesting. There is an inventory transaction when we use item charges on purchases. However, the inventory general ledger used for freight costs does not depend on the item charge. The general ledger code is the one where the item cost will post, and it depends on the Inventory Posting Group of the item and the location where we receive the item. This is why we cannot post an item charge line if there is no application to a material transaction, IE, a purchase receipt.
Let's do an example:
On January the 1st we purchase goods for ￡1,000.00
We have the following transactions (I did not include VAT to make it simpler)
On January the 3rd, we post a freight invoice for ￡100,00, and we apply the cost to the purchase receipt of January the 1st
In the picture below, you can see the transactions above in T accounting.?
In summary:
As usual, run a few tests in a test company before implementing the changes.
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Regards
Alfredo?
Dynamics 365 ERP Functional Consultant& Delivery Lead @ Adroit Solutions | Microsoft Certified, Business Analytics
1 年Alfredo Iorio please advise how to apply an item charge before items are received into your inventory. We currently have tax assessments done by tax authorities before items are released to the buyer warehouse and these charges are expected to increase the cost of the items.
Microsoft Apps - Global Business Development Director at iDynamics
2 年Great content
Senior IT & ERP Solutions Leader | Driving Digital Transformation & Business Process Optimization
2 年Great explanation of the process. Just to add my cent of knowledge this item charge can also be either equally or based on amount divided to all received or part of items.