Description

The Inventory Accounting module generates financial information based on inventory and manufacturing activity.  Throughout each accounting period, activity is recorded in the Purchasing, Order Processing, Inventory Control, Transfer Control, Shop Floor Control, and Just-in-Time modules. 

When the period is closed, Inventory Accounting reads the audit trail files from each of these modules to determine what transactions occurred.  Although you have the option of selecting which audit trail files are actually written (in Reference File category N23), MAC-PAC will not allow this option for any audit trails which feed into Inventory Accounting.  Therefore, as you may determine whether or not most audit trails are written, Inventory Accounting audit trails and those which feed into Inventory Accounting are the exception to the optional audit trail feature.  It applies standard costs to the transactions to determine the value of on-hand and work-in-process inventory and automatically creates journal entries to the general ledger to reflect these calculations.  It also produces reports to help you reconcile and analyze fiscal period activity. 

The module fully accounts for the net change between beginning and ending stores, finished goods, and work-in-process inventory balances.

Management Reporting

If you are using the MAC-PAC General Ledger module, you may set up your financial system to distinguish between fiscal and managerial accounting transactions by defining two different types of accounts (fiscal and managerial).  Fiscal accounting transactions are those subject to legal requirements while managerial accounting transactions are subject to internally defined requirements. 

If you set up your financial system for managerial reporting, you must define a reporting class (fiscal, managerial, or common) for the Inventory Accounting subsystem.  The reporting class determines which types of accounting transactions can be made in the subsystem, and is assigned on Reference File category 026, Subsystem Reporting Class. 

For a fiscal subsystem, only fiscal accounting transactions are allowed.  For a managerial subsystem, only managerial accounting transactions are allowed.  For a common subsystem, all types of accounting transactions are allowed.  Usually, when the management reporting option is chosen, the Inventory Accounting sub-system is set up with either a managerial (M) or a common reporting class (C). 

Note:    If you are using the management reporting option, please read Management Reporting in the Key Concepts section of the General Ledger User Manual before you set up the Inventory Accounting system.

Inventory Valuation

The value of inventory is affected by purchase receipts and returns, issues to production, receipts from production, customer shipments and returns, inventory transfers, and inventory adjustments.  Beginning and ending inventory balances, as well as period activity, are calculated and reported.  This information allows you to reconcile financial results and to monitor and analyze inventory levels.

Inventory is valued using accounting, or frozen, standards.  The total standard cost for a part includes material, labor, and overhead costs, made up of user-defined cost elements.

For non-standard parts or warehouses defined as moving average, the system can perform moving average costing.  You specify an initial cost for the part, and from then on an average cost is calculated automatically as transactions are recorded.  The average cost is maintained under these conditions:

·     When inventory is received against a purchase order, based on the purchase price.

·     When inventory is transferred from another warehouse, based on the transfer price of the inventory in the transferring warehouse.

·     When inventory is shipped to a customer, based on the cost of the sale.

·     When inventory is adjusted and you have specified a cost or value for the adjusted inventory.

WIP Valuation and Variance Reporting 

Inventory Accounting supports order-based production and flow production.  For MRPII parts, the manufacturing order is used as the basis for reporting activity and calculating variances.  For Just-in-Time (JIT) parts, the manufactured part is used as the basis for reporting activity and calculating variances.  Material issues, labor hours, machine run time, miscellaneous costs, and finished product receipts affect the value of production, or work-in-process, inventory.

In valuing inventory, Inventory Accounting applies standard costs to actual activity.  It also compares the actual activity reported to standards you have established to help you determine whether your manufacturing process is performing as expected.  Two types of variances are reported:

·     Order Closure Variances.  Closure variances are calculated after a manufacturing order is complete and a grace period is elapsed.  For JIT parts, variances are calculated by comparing all activity reported during a fiscal period for a part to its standard definition.

·     As-Incurred Variances.  You can choose to report some variances as they occur, before the manufacturing order is closed.  As-incurred variances are calculated for each routing operation that was completed during the accounting period.  Using as-incurred variances allows you to remove variance costs from the work-in-process account before the order is closed.

Journal Entry Generation

Each business transaction affects at least two general ledger accounts.  You define the specific accounts to be debited and credited for each type of transaction using account assignment tables, described in the Setting Up Account Number Categories topic.  The journal entry records are passed and posted to the General Ledger module automatically.  Account distribution and transaction detail reports provide an audit trail for all activity posted in a fiscal period.