GL Impact Changes
When the cost engine recalculates, certain transaction GL entries are automatically adjusted.
Overview: Cost Flow Diagram
COST FLOW: SETTING vs CONSUMING
═══════════════════════════════════════════════════════════════════════════════
┌─────────────────────────────────────────────────────────────────────────────┐
│ │
│ COST-SETTING TRANSACTIONS COST-CONSUMING TRANSACTIONS │
│ (Determine item cost) (Use item cost for GL) │
│ │
│ ┌─────────────────┐ ┌─────────────────┐ │
│ │ Item Receipt │──────┐ │ Item Fulfillment│ │
│ │ (PO Receipt) │ │ │ │ │
│ └─────────────────┘ │ └────────┬────────┘ │
│ │ │ │
│ ┌─────────────────┐ │ ┌────────▼────────┐ │
│ │ Vendor Bill │ │ │ Invoice Direct │ │
│ │ (Direct) │──────┤ │ │ │
│ └─────────────────┘ │ └────────┬────────┘ │
│ │ │ │
│ ┌─────────────────┐ │ ┌──────┐ ┌────────▼────────┐ │
│ │ Inventory │──────┼───►│ ITEM │──│ Cash Sale │ │
│ │ Adjustment + │ │ │ COST │ │ │ │
│ │ (QTY PLUS) │ │ └──────┘ └────────┬────────┘ │
│ └─────────────────┘ │ │ │ │
│ │ │ ┌────────▼────────┐ │
│ ┌─────────────────┐ │ │ │ Work Order │ │
│ │ Work Order │──────┤ │ │ Issue │ │
│ │ Completion │ │ │ └────────┬────────┘ │
│ └─────────────────┘ │ │ │ │
│ │ │ ┌────────▼────────┐ │
│ ┌─────────────────┐ │ │ │ Vendor Return │ │
│ │ Assembly Build │──────┘ │ │ │ │
│ │ │ │ └────────┬────────┘ │
│ └─────────────────┘ │ │ │
│ │ ┌────────▼────────┐ │
│ │ │ Transfer Order │ │
│ When cost │ │ (Fulfillment) │ │
│ changes, │ └────────┬────────┘ │
│ all these─┘ │ │
│ transactions ┌────────▼────────┐ │
│ have GL updated │ Inventory │ │
│ │ Adjustment - │ │
│ │ (QTY MINUS) │ │
│ └─────────────────┘ │
│ │
└─────────────────────────────────────────────────────────────────────────────┘
Transactions with GL Changes After Recalculation
Sales Transactions
| Transaction | GL Account Affected | What Changes |
|---|---|---|
| Item Fulfillment | COGS, Inventory Asset | COGS amount recalculated |
| Invoice (Direct) | COGS, Inventory Asset | COGS amount recalculated |
| Cash Sale | COGS, Inventory Asset | COGS amount recalculated |
| Credit Memo (with return) | COGS, Inventory Asset | Return cost recalculated |
Purchase Transactions
| Transaction | GL Account Affected | What Changes |
|---|---|---|
| Item Receipt | Inventory Asset, IRNB | Inventory value updated |
| Vendor Bill (Direct) | Inventory Asset, A/P | Inventory value updated |
| Vendor Bill (from IR) | Purchase Price Variance | Variance amount calculated |
| Vendor Return | Inventory Asset, A/P | Return value recalculated |
Manufacturing Transactions
| Transaction | GL Account Affected | What Changes |
|---|---|---|
| Work Order Issue | WIP, Inventory Asset | Component cost to WIP |
| Work Order Completion | Finished Goods, WIP | Finished goods value |
| Assembly Build | Inventory Asset (both) | Assembly cost from components |
Inventory Transactions
| Transaction | GL Account Affected | What Changes |
|---|---|---|
| Inventory Adjustment | Inventory Asset, Adjustment Acct | Value recalculated |
| Transfer Order Fulfill | In-Transit, Source Location | Transfer value |
| Transfer Order Receive | Destination, In-Transit | Receive value |
| Inventory Transfer | Location accounts | Transfer value |
GL Impact Flow by Transaction Type
Item Fulfillment GL Change
FULFILLMENT GL RECALCULATION
═══════════════════════════════════════════════════════════════════════════════
BEFORE RECALCULATION (Original):
─────────────────────────────────────────────────────────────────────────────
Fulfillment #IF001 - 50 units @ $10.00 (estimated cost)
Dr. Cost of Goods Sold $500.00
Cr. Inventory Asset $500.00
AFTER RECALCULATION (Cost changed to $12.00):
─────────────────────────────────────────────────────────────────────────────
System COGS Adjustment created:
Dr. Cost of Goods Sold $100.00 (50 × $2.00 increase)
Cr. Inventory Asset $100.00
RESULT: Total COGS for this fulfillment = $600.00
Invoice Direct GL Change
INVOICE DIRECT GL RECALCULATION
═══════════════════════════════════════════════════════════════════════════════
BEFORE RECALCULATION:
─────────────────────────────────────────────────────────────────────────────
Invoice #INV001 (Direct) - 30 units @ $8.00 (old cost)
Dr. Accounts Receivable $600.00 (30 × $20 selling price)
Cr. Sales Revenue $600.00
Dr. Cost of Goods Sold $240.00 (30 × $8 cost)
Cr. Inventory Asset $240.00
AFTER RECALCULATION (Cost changed to $10.00):
─────────────────────────────────────────────────────────────────────────────
System COGS Adjustment:
Dr. Cost of Goods Sold $60.00 (30 × $2.00 increase)
Cr. Inventory Asset $60.00
RESULT:
- Revenue unchanged: $600.00
- COGS updated: $300.00 (was $240.00)
- Gross Profit: $300.00 (was $360.00)
Work Order Issue GL Change
WORK ORDER ISSUE GL RECALCULATION
═══════════════════════════════════════════════════════════════════════════════
BEFORE RECALCULATION:
─────────────────────────────────────────────────────────────────────────────
WO Issue #WOI001 - Component: 100 units @ $5.00
Dr. Work in Process $500.00
Cr. Inventory Asset $500.00
AFTER RECALCULATION (Component cost changed to $6.00):
─────────────────────────────────────────────────────────────────────────────
System Adjustment:
Dr. Work in Process $100.00 (100 × $1.00 increase)
Cr. Inventory Asset $100.00
RESULT: WIP now reflects accurate component cost
This flows through to WO Completion cost
Complete Recalculation Chain Example
FULL RECALCULATION CHAIN
═══════════════════════════════════════════════════════════════════════════════
TRIGGER: Item Receipt edited (Cost changed from $10 to $12)
─────────────────────────────────────────────────────────────────────────────
Day 1: Item Receipt (TRIGGER)
├── Original: 100 units @ $10.00
└── Edited to: 100 units @ $12.00
│
▼
┌──────────────────────────────────────────────────────────────────┐
│ COST ENGINE IDENTIFIES ALL AFFECTED TRANSACTIONS │
│ │
│ Scans: Day 1 through Today │
│ Item: "Widget A" │
└──────────────────────────────────────────────────────────────────┘
│
▼
Day 3: Fulfillment #1 (50 units)
├── Original GL: COGS $500 (50 × $10)
├── Adjustment: COGS +$100 (50 × $2)
└── New GL: COGS $600 (50 × $12)
│
▼
Day 5: Cash Sale #1 (20 units)
├── Original GL: COGS $200 (20 × $10)
├── Adjustment: COGS +$40 (20 × $2)
└── New GL: COGS $240 (20 × $12)
│
▼
Day 7: WO Issue #1 (30 units used as component)
├── Original GL: WIP $300 (30 × $10)
├── Adjustment: WIP +$60 (30 × $2)
└── New GL: WIP $360 (30 × $12)
│
▼
Day 8: WO Completion #1 (builds 10 finished goods)
├── Component cost increased
├── Finished goods cost recalculated
└── If finished goods sold, those COGS also recalculated
│
▼
┌──────────────────────────────────────────────────────────────────┐
│ TOTAL GL ADJUSTMENTS CREATED: │
│ │
│ COGS increase: $140.00 │
│ WIP increase: $60.00 │
│ Inventory Asset decrease: $200.00 │
│ │
│ (Balanced journal entries) │
└──────────────────────────────────────────────────────────────────┘
GL Accounts Affected Summary
By Account Type
ACCOUNTS THAT CHANGE AFTER RECALCULATION
═══════════════════════════════════════════════════════════════════════════════
BALANCE SHEET ACCOUNTS:
─────────────────────────────────────────────────────────────────────────────
┌─────────────────────┬────────────────────────────────────────────────────┐
│ Inventory Asset │ Increases/decreases based on new cost │
│ Work in Process │ Component costs updated │
│ IRNB (Liability) │ Receipt accrual updated if bill rate differs │
│ In-Transit │ Transfer values updated │
└─────────────────────┴────────────────────────────────────────────────────┘
INCOME STATEMENT ACCOUNTS:
─────────────────────────────────────────────────────────────────────────────
┌─────────────────────┬────────────────────────────────────────────────────┐
│ Cost of Goods Sold │ All sales transactions COGS updated │
│ Purchase Price Var │ Bill vs Receipt variance (Standard Costing) │
│ Inventory Adjust │ Adjustment transactions updated │
│ WIP Variance │ Manufacturing variances updated │
└─────────────────────┴────────────────────────────────────────────────────┘
Accounts NOT Affected
| Account | Why Not Affected |
|---|---|
| Accounts Receivable | Based on selling price, not cost |
| Sales Revenue | Based on selling price, not cost |
| Accounts Payable | Based on bill amount, not cost |
| Cash/Bank | Based on payment amounts |
System COGS Adjustment Entries
When the cost engine recalculates, it creates System COGS Adjustment journal entries.
How to Find Them
- Go to Reports > Financial > General Ledger
- Filter by account: Cost of Goods Sold
- Look for entries with memo: "System COGS Adjustment"
What They Look Like
SYSTEM COGS ADJUSTMENT ENTRY
═══════════════════════════════════════════════════════════════════════════════
Transaction: System COGS Adjustment
Date: [Date of recalculation]
Related Record: [Original transaction that was adjusted]
Memo: System generated cost adjustment
┌────────────────────────────┬────────────┬────────────┐
│ Account │ Debit │ Credit │
├────────────────────────────┼────────────┼────────────┤
│ Cost of Goods Sold │ $100.00 │ │
│ Inventory Asset │ │ $100.00 │
├────────────────────────────┼────────────┼────────────┤
│ TOTAL │ $100.00 │ $100.00 │
└────────────────────────────┴────────────┴────────────┘
Note: This entry is linked to the original transaction.
View the original transaction to see the link.
Period Considerations
Cross-Period GL Changes
CROSS-PERIOD RECALCULATION
═══════════════════════════════════════════════════════════════════════════════
SCENARIO: Receipt in January, edited in March
─────────────────────────────────────────────────────────────────────────────
January (Period: CLOSED)
├── Item Receipt: 100 units @ $10.00
├── Fulfillment #1: 50 units @ $10.00 COGS
└── Period closed with these values
February (Period: CLOSED)
├── Fulfillment #2: 30 units @ $10.00 COGS
└── Period closed with these values
March (Period: OPEN)
└── Receipt EDITED to $12.00
│
▼
┌────────────────────────────────────────────────────────────────────┐
│ RECALCULATION CREATES ADJUSTMENTS: │
│ │
│ For January transactions: │
│ System COGS Adj dated in MARCH (current open period) │
│ Adjusts January COGS but posts to March │
│ │
│ For February transactions: │
│ System COGS Adj dated in MARCH │
│ Adjusts February COGS but posts to March │
│ │
│ RESULT: Closed periods unchanged, March absorbs adjustments │
└────────────────────────────────────────────────────────────────────┘
WARNING: This can cause unexpected P&L variances in current period!
Summary Table: What Changes vs What Doesn't
| Transaction Type | Revenue/AR Changes? | COGS/Inventory Changes? | Notes |
|---|---|---|---|
| Item Fulfillment | No | Yes | COGS recalculated |
| Invoice (Direct) | No | Yes | COGS recalculated |
| Invoice (from IF) | No | No | Cost set at fulfillment |
| Cash Sale | No | Yes | COGS recalculated |
| Item Receipt | N/A | Yes | Inventory value updated |
| Vendor Bill (Direct) | N/A | Yes | Inventory value updated |
| Vendor Bill (from IR) | N/A | Yes | Variance calculated |
| Work Order Issue | N/A | Yes | WIP updated |
| Work Order Completion | N/A | Yes | FG cost updated |
| Customer Payment | No | No | No inventory |
| Vendor Payment | No | No | No inventory |
Next Steps
- Backdated Transactions - Impact of backdating on costs
- Cost Engine Overview - How the cost engine works