A customer must fill out the online request for an item, known as a usage order, in the Inventory Module of the NCAS. Once the usage order has been submitted to the warehouse, the system allocates available items to the order. The items are then picked from the shelves and the pick is recorded, or posted, in the NCAS. After the items have been picked, they are shipped to the customer. The shipping details are also recorded in the NCAS. Accounting entries are generated at different stages in this process.
Creating the Usage Order
The Inventory module is integrated with the Budgetary Control (BC) module. When a customer enters a usage order in the Inventory module, the NCAS verifies that the requesting division has enough funds to cover the transaction.
If sufficient funds are available, funds are encumbered for the usage order. The funds are encumbered for the requesters company, which in an intracompany transaction is the same as the warehouses company. The Encumbrance (89XXXX) account is debited and the Reserve for Encumbrance (890000) account is credited. The amount encumbered is the quantity ordered multiplied by the issuing cost of the item (average cost plus storage overhead) at the time the order is placed. The GL effective date for this transaction is the date that the usage order is entered in the NCAS.
For example, a customer ordered
three tubes of ointment. At the time the order was placed, the average
cost of the item was $2.20 per tube. In addition, your warehouse has now
decided to charge a five percent storage overhead for burn ointment. Therefore,
the issuing cost of the item at the time of order is $2.31 per tube. The
encumbrance entry that the NCAS will generate is as follows:
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|
|
|
| Encumbrance |
6.93
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| Reserve for Encumbrance |
6.93
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Picking and Posting the Usage Order
Posting or recording the picked items in the NCAS adjusts the item balances in the Inventory module. No accounting entries are generated at this stage in the usage order process.
Your warehouse picks the three tubes of ointment and posts the pick in the NCAS. No accounting entries are generated at this time.
Shipping the Usage Order
When the order is recorded as shipped in the NCAS, the encumbrance entry is reversed. The Reserve for Encumbrance account is debited and the Encumbrance account is credited. The encumbrance reversal amount is the quantity shipped multiplied by the average cost of the item (plus any storage overhead, if applicable) at the time the order was placed. The effective date for the GL entries is the date that the inventory is recorded in the NCAS as shipped.
In addition to the encumbrance reversal, the warehouses asset account is also decreased and the requesters expense account is debited. (Refer to the Order Shipment/Direct Issue (Intracompany) transaction in the Accounting Activities Table.) Within the group account for that item, the Reserve for Inventory account (event ID A020) is debited and the Inventory asset account (event ID A010) is credited. If a storage overhead is applied to the item, the Storage Overhead account (event ID A060) is also credited for the amount of the overhead.
Note: In order to ensure that the Inventory and the Reserve for Inventory accounts remain in balance, the Storage Overhead account should be an account that can be rolled up to the Reserve for Inventory account on the BD reports.
For the requester, the Usage Expense account (event ID E010) for the item is debited and an Expense Offset account (event ID A100) is credited. Because the requester belongs to the same company as the warehouse, the these accounts are located within the same group account or location account used by the warehouse.
Note: The NCAS allows the customer to override the default Usage Expense account when he or she is creating a usage order. If the customer exercises this option, then the specific account entered by the customer is debited instead of the Usage Expense account (event ID E010).
The expense entries for usage orders are made to consumption expense accounts that use 59 as their first two characters. A 53XXXX expense account (Purchases for Resale) is only debited when the warehouse originally purchases the item from the vendor. The offsetting expense credit entry is also not made against the warehouse Purchases for Resale (53XXXX account) because 53XXXX accounts are used to check for available funds for purchases into inventory.
The transaction amount for the entries to the Reserve for Inventory, the Usage Expense and the Expense Offset account is the quantity shipped multiplied by the items issuing cost (average cost plus storage overhead) at the time of shipment. The transaction amount for the Inventory asset account is the quantity shipped multiplied by the items average cost (excluding storage overhead) at the time of shipment. The transaction amount for the Storage Overhead account is the storage overhead amount (quantity shipped multiplied by storage overhead per unit) for the transaction.
For example, your warehouse has shipped the three tubes of ointment to the customer. Between the time that the order was placed and shipped, your warehouse received an additional 10 tubes that had been ordered from warehouse XXTRN5. With the additional tubes, the issuing cost of the item (the average cost plus the storage overhead) is $2.16 per tube. The average cost of the item is $2.06 per tube and the applicable five percent storage overhead works out to $0.10 per tube. The issuing cost of the item at the time of order was $2.31 per tube.
In this example, the encumbrance
reversal amount is $6.93 (three tubes multiplied by the order cost of $2.31
per tube). The transaction amount for the issue is $6.48 (three tubes multiplied
by the shipment cost of $2.16 per tube.) The accounting entries generated
at the time of shipment are:
| (For warehouse XXTRN3) |
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| Reserve for Inventory (XXMEDICAL) |
6.48
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| Inventory (XXMEDICAL) |
6.18
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| Storage Overhead (XXMEDICAL) |
0.30
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|
| (For the Customer) | ||
| Reserve for Encumbrance |
6.93
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|
| Encumbrance |
6.93
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|
| Usage Expense (XXMEDICAL) |
6.48
|
|
| Expense Offset (XXMEDICAL) |
6.48
|