production order settlement stock adjustment account

[Former Member]

Hi CO guru,

Knowing that there are various processes during month end in relation to PO like overhead calculation, wip, variance and finally settlement.

For wip and variance, the double entry is both wip BS account and stock adjustment PL account or variance PL account and stock adjustment PL account when settle.

1 May I know the stock adjustment account is to net off during wip calculation and variance calculation?

Example during GI, dr consumption (cost obj of production order) and cr raw mats

during wip or variance, to credit the offsetting account is stock adjustment account

in the end, both consumption and stock adjustment net off.

Correct?

2 So may I know what is the purpose of this stock adjustment account during wip or variance? just like accrual or clearing account like GRIR?

Thanks

Regards

[kamalkumar_biswas2 · Accepted solution]

Hi

1. WIP.. This the cost difference between cost debited in the order through GI & Activity and cost credited through GR..if the order is not completed at the time of month end closing. This is considered as cost of unfinished goods to be delivered. Now when you calculate WIP this part of cost is posted to BS GL a/c as WIP and also to PL as a stock adjustment to bring down the effect cost of GR otherwise your PL a/c will not reflect the true picture.

2. Variance.. when your order is marked as complete (status DLV) means there is no pending GR in that order...so the above diff is first calculated through variance for nalysis and then posted through settlement and diff is posted to a PRD a/c

3. In case of WIP 2 parallel doc is generated one for closing and other for opening of next period which is just reverse of the first doc so that in the next month opening there will be no effect of WIP and your order is again in previous status for goods movement. But in case of DLV the order is closed & complete.

    I think you will have some clarity

[Former Member · Accepted solution]

Hi,

Thank you very much on your reply.

1 I can understand you say bring down effect cost of GR but I do not understand you mentioned PL account will not reflect the true picture. Can you explain?

2 on PL stock adjustment account or consumption (both under cost of goods GL group category), may I know if I can think of as just like clearing account?

you see, during GI to PO, debit this account where cost object PO tagged with it and GR from PO, it is credited. so the end result is net off.

Correct if I think this way?

Thanks

[kamalkumar_biswas2 · Accepted solution]

Hi

1. When you are doing GR  .. Inv a/c is debited(BS) and COGM(PL) is credited...

    So when you post any diff in BS a/c (WIP) your PL a/c also to be adjusted..that means it is a adjustment to your COGM

2. No..slightly I differ...clearing is for nullify the intermediate a/c like GR/IR a/c...but this is an adjustment a/c  to adjust value (+/-) in BS/PL a/c

[Former Member · Accepted solution]

Hi Kamal,

Thanks for the update.

1 But then let say in ideal situation of production order with no WIP or variance,

the cogm account is debited (during GI) and credited (during GR). so the effect is nullify as well.

so may I know the adjustment meaning? Can have example?

Thanks

Regards

[kamalkumar_biswas2 · Accepted solution]

Hi

1. When you issue good in order..(debit)

            Cons of raw mat (GL/CE) is debited (PL)

                    Stock of raw Mat  is credited

2. When Goods received in order (Credit)

            Stock of SFG/FG  is debit  (BS)

                   COGM is Credit   (PL)

      So you see ...against cost of consumption you have got semi finished/finished products...so don't mix up with Cons a/c with COGM a/c...cons is a expenditure a/c for components raw materials but here COGM is a stock manufacturing a/c

       Adjustment for cost of manufacturing not for raw material input

[Former Member · Accepted solution]

Hi Kamar,

Well said.

Say besides raw mats, also have activity and labour which also GR into production order.

Assuming ideal situation, all debit of cons (raw, labour, activity) and credit of cogm the same, may I know it is also setting off?

Thanks

Regards

[Former Member · Accepted solution]

Hi All,

Maybe I put in this way

direct mat

direct labour

overhead 

total manufacturing cost 500

add beginning of wip      300

                                       800

less ending of wip           450

COGM                            350

1) with WIP by period end

during GI to prod order, mat, labour, overhead posting (total 500) will be debit consumption account whereas when come GR, will credit COGM account (350)

so in this case, consumption and COGM at any period end will never get net off? Is that correct?

in this case, under cost of sales accounting, how to match consumption with COGM by period?

2) no wip by period end

consumption = COGM

In this case, under cost of sales accounting, can match consumption with COGM by period end.

Need CO guru to advise of these 2 cases.

Thanks alot  

[jose_reddy · Accepted solution]

Hi Sapask,

I see lots of posts from you regarding validating the equality of consumption account with COGM account at the end of every period. And I see, your perseverance to get the desired and clear answer from the repsected people. Its really a good practice of learning or clarifying doubts.

What ever the COGM statement, you have portrayed above will not be the same in SAP.

COGM is not the balance value, it is always the value for GR Qty*Standard price.

So, in SAP we will have WIP as the balance figure instead of COGM.

Production cost - COGM = WIP, other wise, Debit value of the Production order - Credit value of the PO

Coming to your queries:

Question 1: If production orders are not completed with in the period, there always exists WIP (if booked any expenditure to the order)

As you rightly said, consumption (Material, labour and OH) will never be equal to COGM.

So, here Consumption = COGM + WIP

Question 2: If all the production orders are completed with in the period (no WIP)

Yes, as you rightly expected, Consumption will be equal to COGM

So, here Consumption = COGM

Regards,

Jose