Setting up Inventory Posting Profiles in Dynamics 365 for Finance and Operations Enterprise Edition (referred to in this blog as Dynamics 365) and Dynamics AX 2012 is mandatory. It can also be super complicated because it’s all around inventory, and we know inventory can be a challenge of its own. Today, I’ll walk you through how to set up Purchase Order posting profiles.
What does the Purchase Order posting profile do?
- It allows the creators of the Purchase Order to simply add items on the PO without having to populate a field as to which general ledger account number each item has to post to. This will significantly reduce mistakes when processing purchase orders.
- It helps the Finance team know postings for receipts of items and final invoice matching are going to the correct accounts. Finance won’t have to spend their time investigating and fixing errors and can focus on more important stuff.
Why Proper Setup is Key
The bottom line when it comes to inventory posting profiles is when you don’t set them up properly, you aren’t getting the most out of your Dynamics 365 or Dynamics AX 2012 system. If you use the same general ledger accounts for different posting types (which we see a lot), you will see values coming in and out, in and out, but you won’t really understand what is going on.
Do You Need the Help of an Experienced Consultant?
As with Sales Order posting profiles, I want to preface the following setup instructions with the fact that every business is different, and will require detailed postings for certain posting types and not for others. So, the best practice would be to work with an experienced Dynamics AX consultant to make sure you are getting the full value out of your system.
That said, the best way to understand the Purchase Order posting profile is to create a purchase order, receive an invoice, match it, and trace the accounting distribution back to the Posting profiles. The following steps show you how to do that.
How to Set Up a Purchase Order Posting Profile:
- Go to Modules > Inventory management > Setup > Posting> Posting
- Below is an example of the screen (form) and I have selected the Purchase Order tab.
- Go to Modules > Inventory management > Setup > Posting> Transaction combinations
- Make sure the options as shown below are selected
Tracing the postings:
The Dynamics 365 sandbox is a great tool to use for this. Use the company USMF to replicate the steps below.
This will be a very simple example where we will set up a Purchase Order for Item #D0003 (pictured below) which is part of Item Group = Audio and uses standard costing for inventory valuation. We will trace the postings from purchase order creation, receipt and invoicing. Note that we are working with a simple example so you won’t have to populate all the radio buttons on the screen; just the ones we need.
Purchase Order Creation:
At the time of Purchase Order #196 creation, no accounting entries will be booked.
- Purchasing 100 units of D0003 at $200 each on the Purchase Order for a total value of $20,000.
Purchase Order Receipt:
At the time of the receipt of the items, the accounting entry must:
- Posting type – Purchase Accrual
- Accrue the estimated liability using the values on the purchase order to best estimate what the final vendor invoice dollar amount will be
- Points to GL 200140
- Posting type – Cost of purchased material received
- Set up the value of the item in inventory (or expense). When using standard costs, the value from the PO might not match the value in standard costs.
- Points to GL 140200
- Posting type – Purchase Price variance; only happens if you have standard costs
- If there is a difference between numbers 1 and 2 above then you have a purchase price variance that must be booked in order for the entry to balance.
- Points to GL 510310
Below is the accounting distribution for the voucher that was created at the time of the receipt:
Let’s trace these postings back to the Purchase Order posting profiles.
- Posting type – Cost of purchased material received
- As the item was in Item Group “Audio” the posting profile pointed to using main account 140200
- If the item was in some other group listed below, use the main account specified
- If the item does not fall into any of the groups listed, use the main account specified by “All” (e.g., 600180)
- Posting type – Purchase Accrual:
- This is a great example where the item group = “Audio” is not called out and therefore we will use the “All” which points to main account 200140
- Posting type – Purchase Price variance
- Because the item used in this example uses standard costs as a valuation, we also used the Standard cost variance tab
- The Purchase price variance for all items points to main account 510310
Purchase Order Invoice Matching:
At the time of matching the vendor invoice to the Purchase Order, to keep it simple, the vendor invoice comes in at the exact amount as the Purchase Order (i.e. $20,000).
- Below is the accounting distribution for the invoice match and it is doing the following:
- Reversing the journal lines that were set up at the time of receipt (per the yellow highlights). Note: no additional entry is required to record or adjust the purchase price variance as this was already handled at the time of receipt. This is the reason the purchase price variance was not reversed.
- Set up the correct payable and value of the inventory (per the pink highlights).
- The posting to set up the Accounts Payable Trade comes from the vendor posting profile.
- Posting type – Cost of purchased materials invoiced
- The item group “Audio” has been called out and the main account to be used was 140200
Again, as with Sales Order posting profiles, it’s best to start with a very simple example like this until you get it working. Then, you can start adding more complex options and profiles. You just have to be sure and test, test, test to get everything right.
The failproof way to get your inventory posting profiles right? Call in the Dynamics 365 and Dynamics AX experts at Western Computer! We’re happy to provide guidance and/or help you map out your profiles, set them up and make sure they are tested and working properly. Contact us anytime for help.
About the AuthorMore Content by Joyce Joseph