Account for Landed Costs on Purchases
As you know from your Accounting classes, if a cost is incurred in bringing an asset to its intended use then that cost should be added to the value of the asset (although there are exceptions of course). In this case the asset we are talking about is Inventory. We call this cost a Landed Cost. These costs include freight, insurance, various taxes, duties, port charges, etc. So how do we account for these costs in Inventory? Read on to find out!
This article assumes you will be rolling the extra costs into the value of the Inventory. There could be extra costs on the Vendor Invoice that you do not want to include in the value of the Inventory. To do this, you should enter the costs directly on the General Ledger tab of the Voucher.
1. Create a new Voucher
Landed Costs are entered at the Voucher stage in the AP life cycle. Typically the exact costs are not known until the Vendor Invoice is received. Most likely you will have already received the items on the PO and closed the PO before your Vendor sends you a bill. As such this is the most logical place to account for Landed Costs.
Create the new Voucher and enter the info in the header section as usual.
2. Decide which PO line items will be paid.
Highlight the line items you are being invoiced for and click Pay Mark. You will see an "X" in the column for line items that will be Vouchered and the Adj Cost column will be populated with the amount of the AIP Value.
3. Account for Landed Costs
- Enter the Freight amount from your Vendor Invoice in the Freight field.
- Enter any other costs (insurance, duties, etc.) from your Vendor Invoice in the Other Costs field.
- Click the Distribute button. This will prorate these costs to each line item based either based on the line item Adj Cost's percentage of the total Voucher Amount or the weight of the received goods if weights have been established for each Product. Alternatively, you can key the Freight/Other amount for each line directly into the cell.