Account Entries Created in Purchase Costing

Outcome

You are able to verify that correct account entries are created, depending on your settings.

Use the information to follow up true costs per purchase order in 'Internal Account Entry. Open' (CAS300) and compare them to the cost of the items involved in 'Product Costing. Display' (PCS300) or 'Purchase Costing. Simulate' (PPS295).

Important Parameters

The following two parameters in 'Settings – Cost Accounting' (CAS900) determine the creation of some account entries when a goods receipt of a purchase order is reported:

075 Split PO price variance.
If the check box is selected, separate account entries are created for price variances for item and charges, respectively. A price variance can occur due to factors such as a changed PO line price and changed charges. If you select the check box, price variances are posted using accounting rule PP10–227 for the item and PP10–228 for the charge. If you do not select the check box, any variance is posted as a total amount using accounting rule PP10–911.
080 Separate PO exchange rate gains/losses.
If the check box is selected, separate account entries are created for price variances due to exchange rate gains or losses. Thus, the exchange rate gain or loss is separated from any other price variance for the item or charges and posted using either accounting rule PP10–301 or PP10–302.

The parameters allow for an improved follow-up of costs in purchase costing.

List of All Account Entries

The table below lists all account entries that can be created when goods are received and reported in 'Purchase Order. Receive Goods' (PPS300).


Accounting Rule	Description	Credit/ Debit	Comment
PP10–903	Expense – non-inventory item	D	Net total value of the purchase order (PO) line.
PP10–910	Inventory (for inventory item)	D	Inventory value according to the inventory accounting method of the item (total of the inventory value for the item and the charges).
PP10–951	Delivered, not invoiced. Connected to a customer order or service order with line type 2.	–	Net total value of the PO line.
PP10–225	Charge – goods received, not invoiced	C	External charge from the costing model selected for the purchase order.
PP10–226	Charge – goods received, not invoiced	C	External charge from the costing model selected for the purchase order.
PP10–251	Internal charge	C	Internal charge from the costing model selected for the purchase order.
PP10–227	Price variance for the item (only for items with inventory accounting method 1='Standard cost')	–	Inventory value of the item. The difference between the net total value of the PO line and the inventory value. Only created when the 075 check box is selected in (CAS900).
PP10–228	Price variance (only for items standard costed items)	–	The difference between the PO net value and the inventory value. Only created when the 075 and 080 check boxes are not selected in (CAS900).
PP10–911	Price variance for the charge (only for standard costed items)	–	Inventory value of the charge, that is, the difference between the PO line charge and the charge according to the inventory cost. Only created when the 075 check box is selected in (CAS900).
PP10–301	Realized exchange gains (only for standard costed items)	C	Created if the exchange rate selected for the PO values causes an exchange rate gain in the standard cost calculation, provided that the 080 check box is selected in (CAS900).
PP10–302	Realized exchange losses (only for standard costed items)	D	Created if the exchange rate selected for the PO values causes an exchange rate loss in the standard cost calculation, provided that the 080-check box is selected in (CAS900).

The Case

The scenarios in this document are based on the following case:

A U.S. company purchases an item in the United Kingdom.
The item is priced in British pounds (GBP).
The local currency of the company is U.S. dollars (USD).
As currency conversion method, the currency amount (the price in British pounds) is multiplied by the exchange rate to obtain amount in local currency.
The exchange rate at standard cost calculation is 1.5.

Purchase Cost Calculation

The calculated purchase cost for one item is:


Type of Cost	In GBP	In USD
10 Purchase price	150.00	225.00
20 External line charges	2.00	3.00
30 Internal line charges	25.00	37.50
40 Total (Purchase Cost)		265.50

Change in Scenario

However, the following changes take place:

Ten pieces are received from the supplier with a changed price: GBP 160.00 instead of GBP 150.00.
The external and internal charges are higher.
The exchange rate at goods receipt is 1.6.

Changed Purchase Cost Calculation


Type of Cost	In GBP	In USD
10 Purchase price	160.00	2,560.00
20 External line charges	3.00	48.00
30 Internal line charges	30.00	480.00
40 Total (Purchase Cost)		3,088.00

Scenario 1 – No Split of Variances

The amounts in the tables below are expressed in U.S. dollars.

Setup in (CAS900)

075 Split PO price variance between item and charges: No
080 Separate PO exchange rate gains/losses from price variance: No

Purchase Cost Calculation


Type of Cost	Standard Cost	PO Value	PO Variance
10 Purchase price	2,250.00	2,560.00
20 External line charges	30.00	48.00
30 Internal line charges	37.50	480.00
40 Total (Purchase Cost)	2,655.00	3,088.00	433.00

Account Entries Created


		Inventory Accounting Method
Account	Acc. Rule	Standard Cost	Average Cost, Dynamic Product Cost, Actual Cost	Non-inventory (Zero Cost)
Inventory	PP10–910	2,655.00	3,088.00
Expense	PP10–903			3,088.00
Goods received, not invoiced – item	PP10–225	–2,560.00	–2,560.00	–2,560.00
Goods received, not invoiced – external charges	PP10–226	–48.00	–48.00	–48.00
Internal charges	PP10–251	–480.00	–480.00	–48.00
Price variance	PP10–911	433.00

Account Entries Created


		Inventory Accounting Method
Account	Acc. Rule	Standard Cost	Average Cost, Dynamic Product Cost, Actual Cost	Non-inventory (Zero Cost)
Inventory	PP10–910	2,655.00	3,088.00
Expense	PP10–903			3,088.00
Goods received, not invoiced – item	PP10–225	–2,560.00	–2,560.00	–2,560.00
Goods received, not invoiced – external charges	PP10–226	–48.00	–48.00	–48.00
Internal charges	PP10–251	–480.00	–480.00	–48.00
Price variance	PP10–911	433.00

Scenario 2 – Split Variance between Item and Charges

The amounts in the tables below are expressed in U.S. dollars.

Setup in (CAS900)

075 Split PO price variance between item and charges: Yes
080 Separate PO exchange rate gains/losses from price variance: No

Purchase Cost Calculation


Type of Cost	Standard Cost	PO Value	PO Variance
10 Purchase price	2,250.00	2,560.00	310.00
20 External line charges	30.00	48.00	18.00
30 Internal line charges	375.00	480.00	105.00
40 Total (Purchase Cost)	2,655.00	3,088.00	433.00

Account Entries Created


		Inventory Accounting Method
Account	Acc. Rule	Standard Cost	Average Cost, Dynamic Product Cost, Actual Cost	Non-inventory (Zero Cost)
Inventory	PP10–910	2,655.00	3,088.00
Expense	PP10–903			3,088.00
Goods received, not invoiced – item	PP10–225	–2,560.00	–2,560.00	–2,560.00
Price variance – item	PP10–227	310.00
Goods received, not invoiced – external charges	PP10–226	–48.00	–48.00	–48.00
Price variance – charge	PP10–228	18.00
Internal charges	PP10–251	–480.00	–480.00	–480.00
Price variance – charge	PP10–228	105.00

Scenario 3 – Split Exchange Rate Gains/Losses

The amounts in the tables below are expressed in U.S. dollars.

Setup in (CAS900)

075 Split PO price variance between item and charges: No
080 Separate PO exchange rate gains/losses from price variance: Yes

Purchase Cost Calculation


Type of Cost	Standard Cost	PO Value	PO Variance	Exchange Rate Gain/Loss
10 Purchase price	2,250.00	2,560.00	310.00	160.00*
20 External line charges	30.00	48.00		3.00**
30 Internal line charges	375.00	480.00		30.00***
40 Total (Purchase Cost)	375.00	3,088.00	240.00

* PO price: (Currency)*(Exchange rate variance)*(Quantity) = 160*0.1*10 = 160.00

** Charge price: (Currency)*(Exchange rate variance)*(Quantity) = 3*0.1*10 = 3.00

*** Charge price: (Currency)*(Exchange rate variance)*(Quantity) = 30*0.1*10 = 30.00

Account Entries Created


		Inventory Accounting Method
Account	Acc. Rule	Standard Cost	Average Cost, Dynamic Product Cost, Actual Cost	Non-inventory (Zero Cost)
Inventory	PP10–910	2,655.00	3,088.00
Expense	PP10–903			3,088.00
Goods received, not invoiced – item	PP10–225	–2,560.00	–2,560.00	–2,560.00
Exchange rate loss	PP10–302	160.00
Goods received, not invoiced – external charges	PP10–226	–48.00	–48.00	–48.00
Exchange rate loss	PP10–302	3.00
Internal charges	PP10–251	–480.00	–480.00	–480.00
Exchange rate loss	PP10–302	30.00
Price variance	PP10–911	240.00

Scenario 4 – Split Price Variance and Exchange Rate Gains/Losses

The amounts in the tables below are expressed in U.S. dollars.

Setup in (CAS900)

075 Split PO price variance between item and charges: Yes
• 080 Separate PO exchange rate gains/losses from price variance: Yes

Purchase Cost Calculation


Type of Cost	Standard Cost	PO Value	PO Variance	Exchange Rate Gain/Loss
10 Purchase price	2,250.00	2,560.00	150.00	160.00*
20 External line charges	30.00	48.00		3.00**
30 Internal line charges	375.00	480.00		30.00***
40 Total (Purchase Cost)	2,655.00	3,088.00

* PO price: (Currency)*(Exchange rate variance)*(Quantity) = 160*0.1*10 = 160.00,

** Charge price: (Currency)*(Exchange rate variance)*(Quantity) = 3*0.1*10 = 3.00

*** Charge price: (Currency)*(Exchange rate variance)*(Quantity) = 30*0.1*10 = 30.00

Account Entries Created


		Inventory Accounting Method
Account	Acc. Rule	Standard Cost	Average Cost, Dynamic Product Cost, Actual Cost	Non-inventory (Zero Cost)
Inventory	PP10–910	2,655.00	3,088.00
Expense	PP10–903			3,088.00
Goods received, not invoiced – item	PP10–225	–2,560.00	–2,560.00	–2,560.00
Exchange rate loss	PP10–302	160.00
Price variance	PP10–227	150.00
Goods received, not invoiced – external charges	PP10–226	–48.00	–48.00	–48.00
Exchange rate loss	PP10–302	3.00
Price variance	PP10–228	15.00
Internal charges	PP10–251	–480.00	–480.00	–480.00
Exchange rate loss	PP10–302	30.00
Price variance	PP10–228	75.00

Compressing Account Entries

If you have selected to split payment variances and exchange rate gains or losses, the number of internal transactions created can be high. However, you can select to reduce the number of transactions to transfer to the General Ledger by compressing them based on accounting dimension. The selection is made for each account in 'Accounting Identity. Open' (CRS630).

Example

Certain internal transactions in 'Internal Account Entry. Open' (CAS300) have item number specified in accounting dimension 4. If you, for the receiving account, select to compress this accounting dimension, the item number will be blanked out when transferring the transactions from the CINACC table to the General Ledger table (FCR040) by running 'Internal Account Entry. Create' (CAS950). This compression results in fewer transactions.

Although the transactions in the General Ledger now lack item number as part of their accounting string, you can still review the original transactions by drilling down to (CAS300) from 'General Ledger. Display Transactions' (GLS210).