Account for Purchase Price Variance
This article will cover what to do when entering a Voucher (Vendor's invoice) for inventory received where the amount billed does not match the amount on the Purchase Order.
On the Voucher in the image above, we have received 10 units of MTB-500 for a total Cost of $85.00, based on the Purchase Order. This is the value that was originally assigned to the inventory Lot when the product was received.
However, when we record the Vendor's Invoice/Voucher, the bill is for $90. This article describes what to do if that $5 difference is simply a price change from the Vendor rather than a landed cost expense such as freight, taxes. etc. For a discussion of landed costs, please refer to the article Account for Landed Costs on Purchases.
To record your actual purchase price of $90, simply enter the correct value in the Adj Cost column on the Voucher. You are entering your actual - full value - cost here, not the difference! That's all there is to it with regard to data entry.
Impact on General Ledger
In this example, the actual amount is higher than expected, resulting in a debit imbalance. If the actual cost is lower than expected, you will follow the same process, but will have a credit imbalance instead. Always enter your actual cost in the Adj Cost column, whether higher or lower than expected. AcctVantage will take care of figuring out if a debit or credit entry is needed.
When your Purchase Order receiver (Purchase Event) was posted, the Inventory Asset account was debited for $85 (using the above example) and the Vendor's Accrual (AIP) account was credited for $85.
When the above Voucher posts, the following General Ledger entries will be made
- $85 Debit to Vendor's Accrual (AIP), bringing the balance to zero for this Purchase Event.
- $90 Credit to Accounts Payable (or alternate payment type if chosen): $90
You'll notice that we are "out of balance" by the $5 variance. That $5 can be accounted for in one of two ways, depending on the physical inventory status.
- If the specific units (Inventory Lot) being reconciled are still available in the inventory system, the $5 Debit will go to the Inventory Asset account.
- If the units have been drawn - in any manner - from the original warehouse, the $5 Debit will go to the designate Cost Adjustment account. This account is designated via Administration > System Setup as seen below.