Principles Behind Landed Costs

The following principles are used:

When goods items are received into inventory, the following processes occur:

• Ledger postings to the inventory account in Financials are carried out. This should be via a ledger interface posting of the type Inventory.
• Receipt costs are created for that particular receipt by the inventory costing process.

Costs such as freight, insurance, customs duty, and so on., may be incurred when transporting the above goods from one country to another. These costs are recorded as charge items on an invoice or order. As such, charge items produce a ledger posting to an expense account in the Financials ledger.

When performing landed costs, it effectively means that the organization does not want to treat the expense costs as costs that the organization incurs, but includes them as part of inventory costs. These expense costs must be transferred from an expense account to an inventory account. Therefore, when performing landed costs the following occurs:

• Receipt costs must be adjusted to show the additional expense costs.
• Costs must be removed from the expense account and added to the inventory account.

Overall in SunSystems, the following occurs:

• Inventory costing - receipt costs are increased in this process. These new receipt costs can be used as per normal receipt costs.
• Apportionment ledger posting - this posting removes costs from the expensed account and adds them to the inventory account. This is for the amount you have identified to be apportioned.
• Suspended ledger posting - this posting removes costs from the expense account and adds them to a suspense account. This is for the amount you have identified to be suspended, that is, the amount you are unsure whether should be expensed or apportioned. In Financials, this amount must be removed from the suspense account and adjusted to the required account. Ideally, this ledger posting is never performed because you should always set the suspended amount to zero before performing landed costs processing.
• There is no posting for the expensed amount because this should already be in the expensed account.

The fundamental principle is that all expense costs are put into an expense account first. Landed costs can then be used to remove an amount from the expense account, and apportion it over goods received and hence the inventory account.