Home‎ > ‎Cost Accounting‎ > ‎b. Purchases‎ > ‎

GL Purchase Transactions

General Ledger Postings On Purchase Invoices

This section might be a little complex. However, understanding what is happening in the general ledger and implications of purchase invoice entries in the general ledger is necessary inorder to understand how to reconcile the various accounts.

Each of the three types of entries in a purchase invoice are posted to the general ledger in different ways:

  • General Ledger Charges - starting with the easiest - the net amounts of these entries are posted to the debit of the general ledger account selected
  • Shipment Charges - these are posted to the debit of the goods received clearing account as defined in the company record. The rationale for this is that the shipment charges relate to the cost of the stock coming in on shipments and they will be apportioned between the various items on the shipment. As such they together with the invoices cost of the stock make up the total cost of the item for comparison to the standard or weighted average cost of the item. When shipments are closed the system calculates the total purchase price variances using shipment charges posted here - together with the invoices entered for the goods.
  • Entry of invoices against stock/inventory received. Costbucket insists on matching purchase invoices against goods received notes (GRNs) created at the time the stock is received against purchase orders. The reason is to ensure suppliers do not over-deliver and that invoices can only be entered against goods received and the business does not pay for items not received! The general ledger treatment is slightly different depending on whether the goods are on a shipment or not.
    • If NO shipment costing is involved then the purchase price at the currency/rate entered in the invoice is compared against the standard or average cost of the item at the time it was received. When the goods were received - the system enters a debit to stock at the standard/average cost and a credit to the goods received clearing account defined in the company record. So the entry of the invoice needs to clear this entry - by crediting the goods received clearing account at the standard/average cost at the time of receiving the item. The difference between this and the cost of the item as invoiced and converted at the days (or covered) exchange rate as entered on the invoice is taken to either the purchase price variance account - as defined in the stock category record under standard costing OR in the event that weighted average standard costing is used the variance is written back to the stock account - again from the stock category record. If weighted average costing is used this also triggers a stock cost update based on this variance divided by the total quantity still in stock. If there is less than the quantity being invoiced in stock still -perhaps some were sold before the purchase invoice was entered - then the variance relating to the quantity left is taken to the stock account and the balance is written off to the purchase price variance account - hey I told you it was complex!
    • With Shipment costing - the total amount of the charge is posted to the debit of the goods received clearing account - variances are taken up only once all shipment charges are in and the user explicity "closes" the shipment

Inventory Costing and GL Postings

The Outsanding Goods Received report shows the calculation of the cost of goods received but not yet invoiced. This calculation is done using the standard cost as it is this figure that is used for the posting to the GL at the time the goods are received. Note that the "standard cost" field is actually the weighted average cost if you are using the weighted average cost method. The standard cost should be reflective of the purchase cost in FX as converted to local currency plus all landing costs. The FX cost as converted to local currency will of course exclude any landing costs and obviously it will be different each time the currency rates of exchange are updated.

Variances are only taken to the GL based on the comparison of the standard cost (at the time the goods were received) compared to what the purchase invoice at the rate used during the purchase invoice entry. If weighted average costing is used then actually the variance is taken to the value of inventory and the unit weighted average cost is updated to reflect the new value.

Exchange differences subsequent i.e. when the purchase invoice is paid is taken to exchange differences and not against the cost of the items that were purchased.