G/L accounting for Inventory

There are various G/L accounts that are related to inventory transactions. The goal of this article is to define those accounts and illustrate where they will be used.

Product Classes

See the articles on Product Classes and Warehouse/Product Class Setup for more info about the following inventory-related G/L accounts:

  • Inventory (Asset)
  • Deferred Revenue (Liability)
  • Sales (Revenue)
  • Cost of Goods Sold (Expense)

There are some other accounts in the Inventory Setup section of System Setup that are used in various places in the system.

Navigate to Administration ➤ System Setup ➤ Inventory & Marketing to find these settings and see the definitions for each below.

System Setup - Inventory Setup
  • Cost Adjustment: The system uses this account to record changes (when necessary) in inventory value that occur during Voucher entry.
    • If inventory was invoiced by the vendor at a different cost from what was entered & received on the Purchase Order, this account is used to record the difference.
    • This account is only used if the inventory has already been fully or partially drawn from Inventory.
    • If the received inventory is still in stock during Voucher entry, then the appropriate inventory asset account will be adjusted to reflect the true cost of the items.
  • Scrap Default: The account that records the value of inventory that has been scrapped. It is the default account for recording a draw via Inventory Maintenance.
  • Warehouse Transfer Freight: The account that records costs when the Freight Amount is entered on a Warehouse Transfer.
  • Accrued Inventory Payable: The account that records a liability for value of inventory that has been received but not yet been vouchered.
  • External Inventory Adjustment: The account that is used to offset imported Physical Inventory Adjustments.
  • New Lot Prefix: This is the prefix for new inventory lots which are not received via PO.
  • PO Lot Prefix: This is the prefix for all new inventory lots which are received via PO.
  • Costing Method: Displays the method for inventory valuation that was chosen during implementation. The options are either Moving Average or FIFO.
    • This is not modifiable after the method is initially selected.
  • Work Order Setup: This account captures the work order setup charge, which is intended to be a flat rate fee per Work Order.
    • The setup cost is entered on the Product record.
  • Work Order Pass Through: The account that is credited (for the for each BOM component) and debited (for each assembly) when a Work Order is posted.
  • Exploded WO Balancing: The account that is debited (for the each BOM component) and credited (for each assembly) when a Work Order is exploded.