GL Impact

Understanding how Group Average Costing affects your General Ledger is crucial for accurate financial reporting.

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Core GL Accounts

Account Structure

Inventory-Related GL Accounts
═══════════════════════════════════════════════════════════════════════════════

BALANCE SHEET (Assets):
────────────────────────────────────────────────────────────────────────────────
  1200 - Inventory Asset              ← Main inventory account
  1210 - Inventory In-Transit         ← Goods being transferred
  1220 - Inventory Received Not Billed (IRNB)  ← Received, no bill yet

BALANCE SHEET (Liabilities):
────────────────────────────────────────────────────────────────────────────────
  2000 - Accounts Payable             ← Vendor bills
  2100 - Accrued Purchases            ← Unbilled receipts

INCOME STATEMENT (Expenses):
────────────────────────────────────────────────────────────────────────────────
  5000 - Cost of Goods Sold (COGS)    ← Primary expense for sold inventory
  5100 - COGS Adjustment              ← Cost corrections/variances
  5200 - Inventory Adjustment Expense ← Write-offs, shrinkage

INCOME STATEMENT (Revenue):
────────────────────────────────────────────────────────────────────────────────
  4000 - Sales Revenue                ← Customer sales

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Purchase Transactions

Purchase Order (No GL Impact)

Purchase Order - GL Impact
═══════════════════════════════════════════════════════════════════════════════

PO #1001: 100 units @ $10.00 = $1,000

GL ENTRIES: NONE

Purchase Orders are commitments, not accounting transactions.
No GL impact until goods are received or billed.

Item Receipt (3-Way Match)

Item Receipt - GL Impact
═══════════════════════════════════════════════════════════════════════════════

Receipt #IR-001: Receive 100 units @ $10.00 against PO #1001

BEFORE:
  Group Average: $11.00
  Qty on Hand: 200 units
  Inventory Value: $2,200

RECEIPT:
  100 units @ $10.00 = $1,000

GL ENTRIES:
┌─────────────────────────────────┬────────────┬────────────┐
│ Account                         │   Debit    │   Credit   │
├─────────────────────────────────┼────────────┼────────────┤
│ 1200 Inventory Asset            │  $1,000.00 │            │
│ 1220 IRNB (or 2100 Accrued)     │            │  $1,000.00 │
└─────────────────────────────────┴────────────┴────────────┘

AFTER:
  Total Value: $2,200 + $1,000 = $3,200
  Total Qty: 200 + 100 = 300
  New Group Average: $3,200 / 300 = $10.67

────────────────────────────────────────────────────────────────────────────────
Note: Inventory recorded at PURCHASE PRICE ($10.00), not previous average
      Group Average recalculates to blend old and new costs

Vendor Bill (Matching Receipt)

Vendor Bill - Matching Receipt Price
═══════════════════════════════════════════════════════════════════════════════

Bill #BILL-001: Bill for 100 units @ $10.00 (matches receipt)

GL ENTRIES:
┌─────────────────────────────────┬────────────┬────────────┐
│ Account                         │   Debit    │   Credit   │
├─────────────────────────────────┼────────────┼────────────┤
│ 1220 IRNB (or 2100 Accrued)     │  $1,000.00 │            │
│ 2000 Accounts Payable           │            │  $1,000.00 │
└─────────────────────────────────┴────────────┴────────────┘

Group Average: UNCHANGED (no cost change when bill matches receipt)

Vendor Bill (Price Variance)

Vendor Bill - Price Different from Receipt
═══════════════════════════════════════════════════════════════════════════════

Original Receipt: 100 units @ $10.00 = $1,000
Actual Bill: 100 units @ $10.50 = $1,050

VARIANCE: $50.00 (Bill higher than receipt)

GL ENTRIES:
┌─────────────────────────────────┬────────────┬────────────┐
│ Account                         │   Debit    │   Credit   │
├─────────────────────────────────┼────────────┼────────────┤
│ 1220 IRNB                       │  $1,000.00 │            │
│ 1200 Inventory Asset            │     $50.00 │            │
│ 2000 Accounts Payable           │            │  $1,050.00 │
└─────────────────────────────────┴────────────┴────────────┘

GROUP AVERAGE IMPACT:
────────────────────────────────────────────────────────────────────────────────
  Before Bill: 300 units @ $10.67 = $3,200
  Variance Added: $50.00
  After Bill: 300 units, Value = $3,250
  New Group Average: $3,250 / 300 = $10.83

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Sales Transactions

Sales Order (No GL Impact)

Sales Order - GL Impact
═══════════════════════════════════════════════════════════════════════════════

SO #5001: 50 units @ $25.00 (sale price) = $1,250

GL ENTRIES: NONE

Sales Orders are commitments. GL impact occurs at fulfillment/invoice.

Item Fulfillment

Item Fulfillment - GL Impact
═══════════════════════════════════════════════════════════════════════════════

Fulfillment #IF-001: Ship 50 units
Current Group Average: $10.83

GL ENTRIES (if posting on fulfillment):
┌─────────────────────────────────┬────────────┬────────────┐
│ Account                         │   Debit    │   Credit   │
├─────────────────────────────────┼────────────┼────────────┤
│ 5000 Cost of Goods Sold         │    $541.50 │            │
│ 1200 Inventory Asset            │            │    $541.50 │
└─────────────────────────────────┴────────────┴────────────┘

CALCULATION:
  COGS = 50 units × $10.83 Group Average = $541.50

INVENTORY AFTER:
  Before: 300 units @ $10.83 = $3,250 (approx)
  Sold: 50 units @ $10.83 = $541.50
  After: 250 units @ $10.83 = $2,708.50

Group Average: $10.83 (UNCHANGED - sales don't recalculate average)

Invoice

Invoice - GL Impact
═══════════════════════════════════════════════════════════════════════════════

Invoice #INV-001: Bill customer for 50 units @ $25.00 = $1,250

GL ENTRIES:
┌─────────────────────────────────┬────────────┬────────────┐
│ Account                         │   Debit    │   Credit   │
├─────────────────────────────────┼────────────┼────────────┤
│ 1100 Accounts Receivable        │  $1,250.00 │            │
│ 4000 Sales Revenue              │            │  $1,250.00 │
└─────────────────────────────────┴────────────┴────────────┘

If COGS posts on invoice (not fulfillment):
┌─────────────────────────────────┬────────────┬────────────┐
│ Account                         │   Debit    │   Credit   │
├─────────────────────────────────┼────────────┼────────────┤
│ 5000 Cost of Goods Sold         │    $541.50 │            │
│ 1200 Inventory Asset            │            │    $541.50 │
└─────────────────────────────────┴────────────┴────────────┘

MARGIN CALCULATION:
────────────────────────────────────────────────────────────────────────────────
  Revenue:     $1,250.00
  COGS:          $541.50
  ────────────────────────
  Gross Margin:  $708.50 (56.7%)

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Inventory Adjustments

Positive Adjustment (Quantity Only)

Inventory Adjustment - Add Quantity (No Cost Specified)
═══════════════════════════════════════════════════════════════════════════════

Adjustment: +25 units (found during count), no cost specified

Current Group Average: $10.83

GL ENTRIES:
┌─────────────────────────────────┬────────────┬────────────┐
│ Account                         │   Debit    │   Credit   │
├─────────────────────────────────┼────────────┼────────────┤
│ 1200 Inventory Asset            │    $270.75 │            │
│ 5200 Inventory Adjustment       │            │    $270.75 │
└─────────────────────────────────┴────────────┴────────────┘

CALCULATION:
  Added at current Group Average: 25 × $10.83 = $270.75

AFTER ADJUSTMENT:
  Before: 250 units @ $10.83 = $2,707.50
  Added: 25 units @ $10.83 = $270.75
  After: 275 units @ $10.83 = $2,978.25

Group Average: $10.83 (UNCHANGED - qty-only adjustments use current average)

Negative Adjustment (Shrinkage/Write-Off)

Inventory Adjustment - Remove Quantity (Shrinkage)
═══════════════════════════════════════════════════════════════════════════════

Adjustment: -15 units (shrinkage discovered)

Current Group Average: $10.83

GL ENTRIES:
┌─────────────────────────────────┬────────────┬────────────┐
│ Account                         │   Debit    │   Credit   │
├─────────────────────────────────┼────────────┼────────────┤
│ 5200 Inventory Adjustment       │    $162.45 │            │
│ 1200 Inventory Asset            │            │    $162.45 │
└─────────────────────────────────┴────────────┴────────────┘

CALCULATION:
  Removed at current Group Average: 15 × $10.83 = $162.45

AFTER ADJUSTMENT:
  Before: 275 units @ $10.83 = $2,978.25
  Removed: 15 units @ $10.83 = $162.45
  After: 260 units @ $10.83 = $2,815.80

Group Average: $10.83 (UNCHANGED)

Adjustment with Cost Override

Inventory Adjustment - With Specified Cost
═══════════════════════════════════════════════════════════════════════════════

Adjustment: +30 units @ $8.00 (promotional stock received)

Current Group Average: $10.83

GL ENTRIES:
┌─────────────────────────────────┬────────────┬────────────┐
│ Account                         │   Debit    │   Credit   │
├─────────────────────────────────┼────────────┼────────────┤
│ 1200 Inventory Asset            │    $240.00 │            │
│ 5200 Inventory Adjustment       │            │    $240.00 │
└─────────────────────────────────┴────────────┴────────────┘

CALCULATION:
  Added at specified cost: 30 × $8.00 = $240.00

GROUP AVERAGE RECALCULATION:
────────────────────────────────────────────────────────────────────────────────
  Before: 260 units, Value = $2,815.80
  Added: 30 units @ $8.00 = $240.00
  After: 290 units, Value = $3,055.80

  New Group Average = $3,055.80 / 290 = $10.54

✓ Group Average CHANGES when cost is specified on adjustment

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Transfers

Transfer Order - Ship

Transfer Order Fulfillment - GL Impact
═══════════════════════════════════════════════════════════════════════════════

Transfer: 100 units from Main Warehouse to Regional DC
Group Average: $10.54

GL ENTRIES:
┌─────────────────────────────────┬────────────┬────────────┐
│ Account                         │   Debit    │   Credit   │
├─────────────────────────────────┼────────────┼────────────┤
│ 1210 Inventory In-Transit       │  $1,054.00 │            │
│ 1200 Inventory Asset (Main WH)  │            │  $1,054.00 │
└─────────────────────────────────┴────────────┴────────────┘

INVENTORY STATUS:
────────────────────────────────────────────────────────────────────────────────
  Main Warehouse: -100 units
  In-Transit: +100 units
  Regional DC: no change yet

Group Average: $10.54 (UNCHANGED)

Transfer Order - Receive

Transfer Order Receipt - GL Impact
═══════════════════════════════════════════════════════════════════════════════

Receive: 100 units at Regional DC
Group Average: $10.54

GL ENTRIES:
┌─────────────────────────────────┬────────────┬────────────┐
│ Account                         │   Debit    │   Credit   │
├─────────────────────────────────┼────────────┼────────────┤
│ 1200 Inventory Asset (Reg DC)   │  $1,054.00 │            │
│ 1210 Inventory In-Transit       │            │  $1,054.00 │
└─────────────────────────────────┴────────────┴────────────┘

INVENTORY STATUS:
────────────────────────────────────────────────────────────────────────────────
  In-Transit: -100 units (cleared)
  Regional DC: +100 units

Group Average: $10.54 (UNCHANGED - no cost impact on transfers)

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Returns

Customer Return (RMA)

Customer Return - GL Impact
═══════════════════════════════════════════════════════════════════════════════

Return: Customer returns 10 units
Group Average at time of return: $10.54

GL ENTRIES - Item Receipt:
┌─────────────────────────────────┬────────────┬────────────┐
│ Account                         │   Debit    │   Credit   │
├─────────────────────────────────┼────────────┼────────────┤
│ 1200 Inventory Asset            │    $105.40 │            │
│ 5000 COGS                       │            │    $105.40 │
└─────────────────────────────────┴────────────┴────────────┘

GL ENTRIES - Credit Memo:
┌─────────────────────────────────┬────────────┬────────────┐
│ Account                         │   Debit    │   Credit   │
├─────────────────────────────────┼────────────┼────────────┤
│ 4000 Sales Revenue              │    $250.00 │            │
│ 1100 Accounts Receivable        │            │    $250.00 │
└─────────────────────────────────┴────────────┴────────────┘

RESULT:
────────────────────────────────────────────────────────────────────────────────
  • Inventory increased by 10 units at current Group Average
  • COGS reduced (reversal of original sale cost)
  • Revenue reduced via credit memo
  • Group Average: UNCHANGED

Vendor Return

Vendor Return - GL Impact
═══════════════════════════════════════════════════════════════════════════════

Return: Return 20 defective units to vendor
Group Average: $10.54

GL ENTRIES:
┌─────────────────────────────────┬────────────┬────────────┐
│ Account                         │   Debit    │   Credit   │
├─────────────────────────────────┼────────────┼────────────┤
│ 2000 Accounts Payable           │    $210.80 │            │
│ 1200 Inventory Asset            │            │    $210.80 │
└─────────────────────────────────┴────────────┴────────────┘

CALCULATION:
  20 units × $10.54 Group Average = $210.80

RESULT:
────────────────────────────────────────────────────────────────────────────────
  • Inventory reduced by 20 units
  • A/P reduced (credit from vendor)
  • Group Average: UNCHANGED

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Assembly/Work Orders

Assembly Build

Assembly Build - GL Impact
═══════════════════════════════════════════════════════════════════════════════

Build: 50 FINISHED-PRODUCT assemblies

BOM Components:
  - 2 × COMPONENT-A @ $5.00 Group Avg = $10.00 per assembly
  - 3 × COMPONENT-B @ $8.00 Group Avg = $24.00 per assembly
  - 1 × COMPONENT-C @ $12.00 Group Avg = $12.00 per assembly
  Total per assembly: $46.00

GL ENTRIES - Component Consumption:
┌─────────────────────────────────┬────────────┬────────────┐
│ Account                         │   Debit    │   Credit   │
├─────────────────────────────────┼────────────┼────────────┤
│ 1250 WIP - Assembly             │  $2,300.00 │            │
│ 1200 Inventory - Component A    │            │    $500.00 │
│ 1200 Inventory - Component B    │            │  $1,200.00 │
│ 1200 Inventory - Component C    │            │    $600.00 │
└─────────────────────────────────┴────────────┴────────────┘

GL ENTRIES - Assembly Receipt:
┌─────────────────────────────────┬────────────┬────────────┐
│ Account                         │   Debit    │   Credit   │
├─────────────────────────────────┼────────────┼────────────┤
│ 1200 Inventory - Finished       │  $2,300.00 │            │
│ 1250 WIP - Assembly             │            │  $2,300.00 │
└─────────────────────────────────┴────────────┴────────────┘

GROUP AVERAGE IMPACT:
────────────────────────────────────────────────────────────────────────────────
  Components: Group averages unchanged (consumption doesn't recalc)
  Finished Good: Group average recalculates

  FINISHED-PRODUCT before build: 100 units @ $44.00 = $4,400
  Build adds: 50 units @ $46.00 = $2,300
  After build: 150 units, Value = $6,700
  New Group Average: $6,700 / 150 = $44.67

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Cost Engine Adjustments

Backdated Transaction Adjustment

Cost Engine GL Adjustment - Backdated Transaction
═══════════════════════════════════════════════════════════════════════════════

Scenario: Receipt entered with date 30 days ago
Cost Engine recalculates and finds COGS was overstated

ORIGINAL COGS (at old average $11.00):
  50 units × $11.00 = $550.00

CORRECT COGS (with backdated receipt, new average $10.50):
  50 units × $10.50 = $525.00

VARIANCE: $25.00 overstated

GL ADJUSTMENT ENTRY (System Generated):
┌─────────────────────────────────┬────────────┬────────────┐
│ Account                         │   Debit    │   Credit   │
├─────────────────────────────────┼────────────┼────────────┤
│ 1200 Inventory Asset            │     $25.00 │            │
│ 5100 COGS Adjustment            │            │     $25.00 │
└─────────────────────────────────┴────────────┴────────────┘

This entry corrects the inventory balance and COGS for the period.

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Summary Tables

GL Impact by Transaction Type

Transaction	Inventory Asset	COGS	A/P	Revenue	Avg Recalc?
Item Receipt	Dr	-	-	-	Yes
Vendor Bill (match)	-	-	Cr	-	No
Vendor Bill (variance)	Dr/Cr	-	Cr	-	Yes
Sale/Fulfillment	Cr	Dr	-	-	No
Invoice	-	-	-	Cr	No
Adjustment (+qty)	Dr	-	-	-	No
Adjustment (-qty)	Cr	-	-	-	No
Adjustment (+w/cost)	Dr	-	-	-	Yes
Transfer (ship)	Cr (In-Transit Dr)	-	-	-	No
Transfer (receive)	Dr (In-Transit Cr)	-	-	-	No
Customer Return	Dr	Cr	-	-	No
Vendor Return	Cr	-	Dr	-	No

Account Quick Reference

GL Account	Normal Balance	Increases When	Decreases When
Inventory Asset	Debit	Receipts, Returns from customer	Sales, Adjustments (-), Vendor returns
COGS	Debit	Sales, Shrinkage	Customer returns
Accounts Payable	Credit	Vendor bills	Payments, Vendor returns
Revenue	Credit	Sales	Customer returns/credits

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Next Steps

• Migration Guide - Switching costing methods
• Calculation Logic - Deep dive into formulas
• Multi-Location Scenarios - Complex transfer scenarios