First, I tell you that you might have abnormal dates and now I’m saying that your purchase orders can cause an out of balance issue. You’re probably thinking what? How?
Let’s think through this flow:
- PO has quantity and unit cost on each line
- Purchase Order Receipt – creates an item ledger entry, value ledger entry and, if expected cost is turned on, general ledger accruals. Remember those value entries are attached to item ledger entries
- Purchase Order Invoice – creates another value ledger entry, still attached to the receipt item ledger entry. The value entry reverses expected and if previously posted, it reverses general ledger accruals. And last but not least the actual costs are posted to the value entries and general ledger.
- The PO receipt entries and PO invoice entries are connected through the value entries which are connected through the item ledger.
If the purchase order is not received and invoiced, the three-way match does not happen and the costs/inventory value flow is disrupted.
Typically, in these situations, vendor invoices are entered to general ledger accounts rather than connecting to purchase order and receipts.
Issues seen with POs that will require you to get professional assistance are:
- Inventory subledger has never been reconciled to the general ledger
- Continuing entries are being recorded in the general ledger manually
- Costing is not being done in BC/NAV which is also driving the manual entries
How do you place controls in your system to stop the root cause of purchase orders distorting your inventory to general ledger reconciliations? Three things.
First, control your allow posting from and to dates in your general ledger.
Second, Cutoff inventory transactions last day of the month; stay and finish all receipts and shipments that will count in the month that is ending.
Third, block your inventory, purchases, direct cost applied accounts from having entries posted directly to them. An though it goes without saying, train, explain, train those users until they really understand.
Good Luck with your reconciliations. Myself, the BC/NAV communities, consultants and partners all stand ready to assist. I truly hope you gained some useful tips from this series.