Price difference account in case of FIFO method

[Former Member]

Hi Experts,

One of client has pop up a question:

According the system behaviour the Price difference account is used when the price in the base document is different than the cost of the open layer linked to that base document, this price difference will be recorded in the Price Difference account. Which means if the price of A/P Invoince differs from the price in the Good Receipt PO then the difference will be posted to the price difference account. But how will the balance of the price difference account credited or debited? Should we make a general ledger postings?

At this moment the balance of the price difference account is 40.000 EUR, the balance of stock account is 320.000 EUR. If these items are sold then the cost is 320.000 not 360.000!

So the system collects these price differences but these refers a real FIFO value , so when the item is sold then the system should calculate these price difference values into the real FIFO value to get the real cost of the item.Is it right or not?

[former_member204969 · Accepted solution]

The price difference account is used only when the current inventory level is lower then the quantity in the invoice. Then the price difference value is divided proportionaly between the inventory account and the price difference account automaticaly.

[Former Member · Accepted solution]

Yes I see that if there is no stock when post the invoice then the price diffrence goes to the price difference account, but it expresses itemcost, so it should go to the item cost account as defined.

At this moment the system collects these price differences on an other account, so what should we do with the balance? We should display for example the stock on 2007.12.31 but regarding the price difference documents, is it possibble?Then we would post an amount according to a rate to the 8140000.

[former_member204969 · Accepted solution]

The price difference account gets only values for the sold items. So it does not refer to the closing stock value. But it can be booked to the COGS (ELÁBÉ) account. At a later time or by setting it for the cost difference account.

[Former Member · Accepted solution]

Dear Istvan,

you mean I can setup for the price difference account the item cost account(COGS)?

[JesperB1 · Accepted solution]

Hi Eszter,

Indeed, the Price Difference Account is a COGS (Expense) account.

In Continuous Stock the calculated Expense (cost of goods sold) is booked when the sale is done as we know.

So when a cost is known later then the actual sale was done this also needs to be booked to an expense account, that is what happens when the Price Difference account is used.

Example:

(Purchase) GRPO Qty 10, Price $15 ($150 debited to Stock)

(Sale) AR Inv Qty 10 ($150 debited to COGS, $150 credited Stock)

Now we have 0 Qty and 0 balance on Stock account.

So now you receive the AP Invoice based on the GRPO where the price in the AP Invoice is 17. this means that you have an additional cost of $20 (Qty 10 * (17-15)).

Why is it NOT debited to stock?

As the stock account should always reflect the value of your stock you cannot debit stock (there is no stock left), so in this scenario it is booked directly as an expense (COGS) instead of going the way -> Stock -> Expense.

That makes sense, right?

Hope it helps.

Jesper

[former_member204969 · Accepted solution]

Yes, you can. As Jesper clearly explained.

[Former Member · Accepted solution]

hi jesper u explained clearly, but my doubt is what about the price difference account. 20/- { (17-15)X10 } goes to price difference account. in month what to do for settlement? is it settlement is required or normal expness account u should be shown?

can u explain

regards

raj

[Former Member · Accepted solution]

Hi,

I completely agree with you in the above scenario, but how about the case in which the items is still in stock. In this case, price difference account is Inventory, itn't is?

If it is true, how to set up the system for scenarios.

Regards,

Son.

[former_member583013 · Accepted solution]

At no point would a Price difference account be an inventory account. It is always a Cost / Exps to the company and most times it is a COGS and would be posted to an accont defined in the COGS drawer

[Former Member · Accepted solution]

Hi Suda,

Because items were not sold yet, so the amount of 20 have to plus into item cost. It reflects exact cost of item. If the system can't track 20 for 10 item as the price in AP differ from GRPO, I have no idea to accept your advice.

That is my opinion.

Thank you for your advice.

Son.

[Former Member]

Hi Eszter

If you are using SAP Business One 2007, you can use the inventory revaluation to move the price difference to the trading stock for FIFO stock. As far as I know this was not possible in 2005. Bear in mind quantity on hand available to revalue.

Kind regards

Peter Juby