Hi Janusz,
Thank you for your input.
I am using 2.3.16 and occassionally doing some tests on 2.3.18.
The issue was noted on 2.3.16.
The way the figures are being handled in 2.3.18, it is quite correct in trying to nail down the most accurate value for the inventory item.
The program calculates the difference in value between GRN and Invoice (due to fluctuations in exchange rate) and passes this value back to the total value of the specific inventory item thus influencing the average value to be as accurate as possible.
But I believe there are some downside in trying to get this level of accuracy for the inventory values.
#1. The postings in GL become quite complicated and someone without knowledge of the working of FrontAccounting will have difficulty making sense of the GL entries.
#2. Theoratically, (I hope I am not wrong here) the final determinant of the true value of an inventory item is what was the exchange rate when the inventory purchase invoice was paid for. That means, the exercise of adjusting inventory values for fluctuation in exchange rate upon invoicing (for a GRN) is something that can be argued as not being necessary.
#3. Refering back to point #2, coding to adjust the inventory value for exchange rates flutuations upon the time of making payments may be taking things too far and also result in GL posting that are too complicated to comprehend.
#4. The application's intent to get the value accurate can be defeated under certain circumstances. This happens when a sales transaction for the product happens in between the GRN entry and Supplier Bill entry.
Let's take this scenario Company ABC with USD as base currency
A. Company ABC receives (GRN only) 100 units of Product X at EUR 1.00 each
Exchange Rate: EUR 1.00 = USD 1.33
Product X Quantity on hand = 100 units
Product X Total value = EUR 100.00 = USD 133.00
B. Company ABC sells 50 units of Product X one week after the GRN
Product X Quantity on hand (balance) = 50 units
Product X Quantity on hand Total value (balance) = EUR 50.00 = USD 66.50
C. Company ABC receives the bill (2 weeks after GRN) for the GRN of 100 units of product X
New Exchange Rate: EUR 1.00 = USD 1.25
FA 2.3.18 would post as follows for the invoice entry
Debit GRN A/c.......... USD 133.00
Credit Supplier A/c.... USD 125.00
Credit Inventory A/c... USD 8.00 (negative amount applied to Product X)
D. Effectively the value of Products X becomes
Total on hand value = USD 57.50 (based on 65.50 - 8.00)
Average cost = USD 1.15 (based on 57.50 / 50)
E. The accurate value should have been
Total on hand value = USD 62.50
Average cost = USD 1.25
#5. I have noted that FA 2.3.18 automatically adjust for cases where posting of adjusting values might cause negative or positive inventory values when quantity is zero. This is okay. But things go wrong when quantity is not zero and adjustment values are generated. Refer to #6 below.
#6. Under certain scenarios, there may be cases where the inventory quantity is positive but the value is negative. (tested on FA 2.3.18)
Let's take this scenario Company XYZ with USD as base currency
A. Company XYZ receives (GRN only) 1000 units of Product J at EUR 10.00 each
Exchange Rate: EUR 1.00 = USD 1.30
Product J Quantity on hand = 1000 units
Product J Total value = EUR 10,000.00 = USD 13,000.00
B. Company XYZ sells 998 units of Product J one week after the GRN
Product J Quantity on hand (balance) = 2 units
Product J Quantity on hand Total value (balance) = EUR 20.00 = USD 26.00
C. Company XYZ receives the bill (2 weeks after GRN) for the GRN of 1000 units of product J
New Exchange Rate: EUR 1.00 = USD 1.28
FA 2.3.18 would post as follows for the invoice entry
Debit GRN A/c.......... USD 13,000.00
Credit Supplier A/c.... USD 12,800.00
Credit Inventory A/c... USD 200.00 (negative amount applied to Product J)
D. Effectively the value of Products J becomes
Total on hand value = USD -174.00 (based on 26.00 - 200.00) (negative value)
Average cost = USD -87.00 (based on -174.00 / 2) (negative value)
E. The accurate value should have been
Total on hand value = USD 25.60
Average cost = USD 12.80
What I am trying to emphasise here is as follows.
##1. The GL posting should be reasonably clear for those who know book keeping but are not familiar with FA
##2. Any value only adjustments to inventory (without corresponding quantity change) should be totally avoided
##3. The inventory values should only be committed upon GRN and must not be altered when supplier bill is entered
##4. The exception to ##2 and ##4 above is when the accountant makes an informed decision to partially devalue inventory or make inventory obsolete
I believe sales return and purchase returns affect the inventory value. I am unable to give my input on this for now.
Best regards,
Kanay
