Perpetual inventory System by
Moving Average 
Use
This document provides examples and explanations for the journal entries created in SAP Business One when managing perpetual inventory system by moving average.
According to this valuation method, a stock receipt posting will debit the Stock account of each warehouse according to the price entered in the document. This price will also update the item's moving average price. A stock release posting will credit the Stock/Returning account according to the item's moving average price.
Note!
· Item prices recorded in A/R Credit Memos and A/R Returns do not influence the moving average and are not considered in the calculation of the journal entries reflecting the inventory value, which these documents create.
· Due to various user actions, the moving average price per item as displayed in the Item Master Data window might be different than the moving average price per item calculated by the Inventory Valuation report. Examples: changing an item status from WH Item to Non-WH Item after performing inventory transactions for this item; Working with negative stocks etc.
Prerequisites
The transactions described below are created under the following assumptions:
· The G/L account name 'Stock 01' relates to release/receipt of items from/to warehouse 01 in each one of the examples provided later.
· The checkbox 'Use Purchase Accounts Posting System' is cleared under Administration ® System Initialization ® Company Details ® Basic Initialization tab page.
· The checkbox 'Use Negative Amount for Reverse Transaction is selected under Administration ® System Initialization ® Company Details ® Basic Initialization tab page.
· There are sufficient stock levels of all the items involved in the below scenarios.
Sales Documents:
Delivery
The following journal entry will be created automatically when you add a Delivery:
G/L Acc. / BP Name |
Debit |
Credit |
Cost of Goods Sold 1 |
100 |
|
Stock 1 |
|
100 |
The amount in the columns Debit and Credit is calculated by multiplying the quantity of each one of the items in the Delivery by their cost price.
Returns and Returns Based on Delivery
The following journal entry will be created automatically when you add Returns:
G/L Acc. / BP Name |
Debit |
Credit |
Cost of Goods Sold 1 |
-100 |
|
Sales Returns |
|
-100 |
A/R Invoice Based on Delivery
When basing an A/R Invoice on a Delivery, no stock posting is created, thus only a regular journal entry is created in the accounting system.
A/R Invoice
The following journal entry will be created automatically when you add an A/R Invoice which is not based on a Delivery:
G/L Acc. / BP Name |
Debit |
Credit |
Customer |
100 |
|
Revenues 1 |
|
100 |
Cost of Goods Sold 1 |
100 |
|
Stock 1 |
|
100 |
Note! This journal entry
includes both the Delivery's inventory transaction and the Invoice's
accounting transaction.
A/R Credit Memo Based on Returns
When basing an A/R Credit Memo on Returns, no stock posting is created, thus only a regular credit journal entry is created in the accounting system.
A/R Credit Memo & A/R Credit Memo Based on A/R Invoice
The following journal entry is created automatically when adding an A/R Credit Memo
G/L Acc. / BP Name |
Debit |
Credit |
Customer |
-100 |
|
Revenues 1 |
|
-100 |
Cost of Goods Sold 1 |
-100 |
|
Sales Returns |
|
-100 |
Note! This scenario is not
relevant for an A/R Credit Memo based on an A/R Reserve Invoice.
Purchasing Documents
Goods Receipt PO
The following journal entry will be created automatically when you add a Goods Receipt PO:
G/L Acc. / BP Name |
Debit |
Credit |
Allocation 1 |
|
100 |
Stock 1 |
100 |
|
The Debit and Credit amounts are calculated by multiplying the quantity of each item in the document by the prices specified in the Goods Receipt PO.
Remember that the Allocation account functions as a temporary alternative to the vendor's account, which will be cleared only after you create a corresponding A/P Invoice or a Goods Returns document.
Goods Receipt PO with Additional Expenses
G/L Acc. / BP Name |
Debit |
Credit |
Allocation 1 |
|
100 |
Add. Expense Clearing 1 |
|
10 |
Stock 1 |
110 |
|
The additional expenses amount recorded in the journal entry is the global amount of additional expenses for the entire quantity.
Goods Returns & Goods Returns Based on Goods Receipt PO
The following journal entry will be created automatically when you add Goods Returns:
G/L Acc. / BP Name |
Debit |
Credit |
Allocation 1 |
|
-100 |
Stock 1 |
-100 |
|
Notice that this journal entry is identical to the entry created by a Goods Receipt PO, only reversed.
Goods Returns & Goods Returns based on a Goods Receipt PO with Additional Expenses
G/L Acc. / BP Name |
Debit |
Credit |
Allocation 1 |
|
-100 |
Add. Expense Clearing 1 |
|
-10 |
Stock 1 |
-110 |
|
A/P Invoice Based on a Goods Receipt PO
When basing an A/P Invoice on a Goods Receipt PO, the Allocation Costs account is debited counter to the vendor's account which is credited:
G/L Acc. / BP Name |
Debit |
Credit |
Vendor |
|
100 |
Allocation 1 |
100 |
|
Note! The Allocation account functions as a clearing account i.e. it is debited by the amount in which it was credited in the Goods Receipt PO.
A/P Invoice based on a Goods Receipt PO with Additional Expenses
G/L Acc. / BP Name |
Debit |
Credit |
Vendor |
|
110 |
Add. Expense Clearing 1 |
10 |
|
Allocation 1 |
100 |
|
A/P Invoice
The following journal entry will be created automatically when you add an A/P Invoice which is not based on a Goods Receipt PO:
G/L Acc. / BP Name |
Debit |
Credit |
Vendor |
|
100 |
Stock 1 |
100 |
|
A/P Invoice with Additional Expenses
G/L Acc. / BP Name |
Debit |
Credit |
Vendor |
|
110 |
Stock 1 |
110 |
|
Note that the Expenses Clearing
account is not recorded in this journal entry since the Stock account reflects
the item prices including additional expenses.
As mentioned earlier, the Expenses Clearing account is a clearing account, and this journal entry recorded the final values for affecting the inventory valuation. Therefore, no intermediate accounts are recorded here.
A/P Credit Memo based on Goods Returns
When you base an A/P Credit Memo on Goods Returns, the journal entry created automatically will be identical to the one created by an A/P Invoice based on a Goods Receipt PO, only reversed:
G/L Acc. / BP Name |
Debit |
Credit |
Vendor |
|
-100 |
Allocation 1 |
-100 |
|
Note! The Allocation Costs account functions as a clearing account i.e. it is debited by the amount in which it was credited in the Goods Returns.
A/P Credit Memo based on Goods Returns with Additional Expenses
G/L Acc. / BP Name |
Debit |
Credit |
Vendor |
|
-110 |
Add. Expense Clearing 1 |
-10 |
|
Allocation 1 |
-100 |
|
A/P Credit Memo & A/P Credit Memo based on A/P Invoice
The following journal entry will be created automatically when you add an A/P Credit Memo which is not based on Goods Returns:
G/L Acc. / BP Name |
Debit |
Credit |
Vendor |
|
-100 |
Stock 1 |
-100 |
|
A/P Credit Memo & A/P Credit Memo based on A/P Invoice with Add. Expenses
G/L Acc. / BP Name |
Debit |
Credit |
Vendor |
|
-110 |
Stock 1 |
-110 |
|
Note that the Expenses Clearing account is not recorded in this journal entry since the Stock account reflects the item prices including additional expenses.
As mentioned earlier, the Expenses Clearing account is a clearing account, and this journal entry recorded the final values for affecting the inventory valuation. Therefore, no intermediate G/L accounts are recorded here.
Inventory Transactions
Goods Receipt
G/L Acc. / BP Name |
Debit |
Credit |
Inventory Offset - Increase |
|
100 |
Stock 1 |
100 |
|
The Debit and Credit amounts are calculated by multiplying the quantity of each item in the document by the prices specified in the Goods Receipt.
Goods Issue
G/L Acc. / BP Name |
Debit |
Credit |
Stock 1 |
|
100 |
Inventory Offset - Decrease |
100 |
|
The amount in the columns Debit and Credit is calculated by multiplying the quantity of each one of the items in the Goods Issue by their cost price.
Stock Transfer
If you had specified different stock accounts for your different warehouses, the Stock Transfer transaction will credit the Stock account of the release warehouse and debit the Stock account of the receipt warehouse. The release/receipt price is set by the moving average price of the item in the release warehouse.
G/L Acc. / BP Name |
Debit |
Credit |
Stock 1 |
|
100 |
Stock 2 |
100 |
|
Initial Quantities and Stock Posting
When entering a positive beginning quantity, the following journal entry is created:
G/L Acc. / BP Name |
Debit |
Credit |
Initial Quantity |
|
100 |
Stock 1 |
100 |
|
A negative beginning quantity will create the following journal entry:
G/L Acc. / BP Name |
Debit |
Credit |
Stock 1 |
|
100 |
Initial Quantity |
100 |
|
Note!
- If the checkbox Allow Beginning Quantities without Price is selected and no price is entered for the items, it is not necessary to specify an Opening Stock account. Notice that no monetary transaction will be created in the accounting system in this scenario.
- If you would like to record beginning quantities including price, you must choose a Opening Stock G/L account manually.
A positive stock posting (after inventory update) where the counted quantity is greater than the existing quantity in stock) will create the following journal entry:
G/L Acc. / BP Name |
Debit |
Credit |
Inventory Offset - Increase 1 |
|
100 |
Stock 1 |
100 |
|
A negative stock posting (after inventory update) where the counted quantity is less than the existing quantity in stock will create the following journal entry:
G/L Acc. / BP Name |
Debit |
Credit |
Stock 1 |
|
100 |
Inventory Offset - Decrease 1 |
100 |
|
See also: