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Accrual Landed Costs Assignment

While the actual method can provide you with accurate landed costs, there are downsides that you may need to consider:

  1. You have to wait for the vendor invoices. Usually, it could take weeks, if not months, for the landed costs invoices to arrive.  This means your gross margin is overstated for an extended period of time. In this rapidly changing environment, timely and accurate information can make or break a company.

  2. There could be multiple landed costs invoices.  You don't exactly know when you have received all of them, and this could cause month-end closing delays.

Benefits of using the Accrual Method:

  1. You don't need to wait.  The inventory cost is costed properly as soon as it is received.

  2. Most likely, you know your landed costs when you place a purchase order, so the estimates for the landed costs could be very accurate.

  3. By using A/P Accrual Accounts, you can analyze the variances by focusing on exceptions, not every inventory transaction.

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