Accounting Posting with FIFO Costing Method

Accounting Setups

Inventory Class

The Inventory Class on the Item Card determines which inventory account is used during posting:

Finished Goods: The Finished Goods inventory account, as defined in the Company Setup, is used.
Subassembly: The Subassembly inventory account, as defined in the Company Setup, is used.
Raw Materials: The Raw Materials inventory account, as defined in the Company Setup, is used.

Company Setup

The following General Ledger (GL) Accounts are defined in the Company Setup:

Accounts Receivable
Accounts Payable
WIP (Work In Progress)
Inventory Adjustment

Account Posting Setups

You can configure GL Accounts in Account Posting Setups by Account Posting Group, Item Posting Group, or Item. The following accounts are commonly used:

Sales/Sales Return
Cost of Goods Sold (COGS)
Purchase/Purchase Return
Sales Discount

Accounting Posting

Item Journal Posting

For Item Journal Posting, the Average Cost (or the last invoiced cost, if the average cost is zero) is used as the default Unit Cost on the Item Journal Line, although users can overwrite this value. The Inventory and Inventory Adjustment accounts are used during posting. For negative adjustments, the Unit Cost is updated based on the applied inbound inventory cost.

Transfer Journals

No general ledger entries are created during Transfer Journal Posting.

Cycle Count Journals

The posting for Cycle Count Journals follows the same logic as Adjustment Journals.

Production Journals/Kitting

The Production Journal can be used for kitting without a Work Order. Upon posting, the following general ledger transactions are created:

Debit	Credit
Finished Goods	Raw Materials Purchase for the Service items

If the component cost is updated during the Daily Adjust Cost Routine, the following adjustments are made:

Debit	Credit
Inventory Adjustment Finished Goods	Raw Materials Inventory Adjustment

Warehouse Receipt Posting

When posting a Warehouse Receipt, the Expected Cost of the received inventory is recorded, but no general ledger entries are created. The expected cost is based on the Purchase Cost entered on the Purchase Line.

Purchase Invoice Posting

When posting a Purchase Invoice, the following general ledger entries are created:

Debit

Credit

Inventory account (for items)

WIP account (for Work Order related service items) Purchase Account (for non Work Order related service items)

Accounts Payable

Purchase Credit Memo Posting

When posting a Purchase Credit Memo, the following entries are created:

Debit	Credit
Accounts Payable	Inventory account WIP Account for Service items that are Work Order related. Purchase Account if Service items are not Work Order related. If the Credit Memo Cost is different from the Inventory Cost, the adjustment is posted to the Inventory Adjustment Account.

Warehouse Shipment Posting

For Warehouse Shipments, the expected cost of shipped inventory is recorded, but no GL entries are created. The Unit Cost is updated during posting, based on the applied inbound inventory cost.

Sales Invoice Posting

For Sales Invoice Posting, the following general ledger entries are created:

Debit	Credit
Accounts Receivable COGS	Sales Sales Discount Sales Tax Payable Inventory Account For Service Items, there is no general ledger entry created.

Sales Credit Memo Posting

When posting a Sales Credit Memo, the following entries are created:

Debit	Credit
Sales Sales Tax Payable Inventory account For Service Items, there are no general ledger entries	Accounts Receivable COGS

More Information:
- Posting the Cost of Returned Inventory

Work Order Posting

For Work Orders, when posting the Production Journal, the following entries are made:

Components:

Debit	Credit
WIP	Raw Material Inventory Account

Direct Work Center Service:

Debit	Credit
WIP	Capacity Expense Account (setup as contra Payroll or Labor Recovery account on the Company Setup)

Indirect Work Center Service:

Debit	Credit
WIP	Indirect Capacity Expense Account

When the Work Order is finished, the following entries are made:

Debit	Credit
Finished Good Inventory	WIP

The Unit Cost is calculated based on the total cost of the Work Order divided by the quantity of finished items. During the Adjust Cost Routine, the invoiced cost for the output item is updated based on the latest WIP costs.