Why does the inventory cost of a Purchase Credit Memo not match the cost on the original Purchase Invoice?

The cost of an inventory item on a Purchase Credit Memo is based on the Costing Method on the Item card.  If the Costing Method is FIFO (First In First Out), NAV by default, will adjust the cost to match the cost of the first open, positive Item Ledger Entry (cost layer) for that Item.  This is because a Purchase Credit Memo is a negative entry (taking an item out of inventory) and as such must be matched to the appropriate positive Item Ledger Entry.

For example, Item No. ABC is setup with the Costing Method of FIFO and has the following three purchases:

 

Posting Date Entry Type Document Type Document No. Item No. Quantity Open Cost Amount (Actual) Unit Cost

7/23/2010

Purchase Purchase Receipt PR10001 ABC

10

No

100.00

10.00

9/10/2010

Purchase Purchase Receipt PR10002 ABC

5

Yes

55.00

11.00

9/30/2010

Purchase Purchase Receipt PR10003 ABC

2

Yes

24.00

12.00

 

You need to do a Purchase Credit Memo for the last line item (PR10003).  You create a Purchase Credit Memo manually or by using the Copy Document feature.  If you use Copy Document and copy either the Posted Receipt or Posted Invoice, the following fields will be set as follows:

  • Unit Cost: $12.00
  • Quantity: 2
  • Amount: $24.00

If the Purchase Credit Memo was manually created the Unit Cost, Quantity, and Amount will display whatever the user manually entered.

If automatic adjust cost is turned on, when the Purchase Credit Memo is posted, NAV checks the Item card for the Costing Method.  If the Costing Method is FIFO, the system will look for the cost of the first positive, open Item Ledger Entry.  In this case, that would be PR10002 (since PR10001 is no longer open).  This would mean the per unit cost is $11.00.  For that reason, NAV makes an adjustment to make the Purchase Credit Memo that was just posted have a Unit Cost of $11.00 and a total Amount of $22.00.

If automatic adjust cost is turned off, the Purchase Credit Memo will post with the cost entered on the Purchase Credit Memo.  However, as soon as the adjust cost routine is run it will adjust the inventory cost on the Purchase Credit Memo down to the $11.00 per unit or $22.00 total.

It is possible to bypass this native NAV behavior and have the cost on the Purchase Credit Memo match the cost on the Purchase Invoice.  However, before making this change you should consult your accountant.  In order to make the cost on the Purchase Credit Memo tie to the Invoice it is necessary to:

  1. Choose columns on the Purchase Credit Memo Lines and show the “Appl.-to Item Entry” field
  2. Lookup from the Appl.-to Item Entry field.  This will display a list of all the open, positive cost layers for the given item.  Select the appropriate cost layer. 

By setting the Appl.-to Item Entry field when the Purchase Credit Memo is posted the cost will be adjusted to the Item Ledger Entry/cost layer selected and will not be based on FIFO.

If you would like to always tie the cost of a Purchase Credit Memo to the Purchase Receipt/Purchase Invoice you can go to Purchases & Payable Setup and check the option for “Exact Cost Reversing Mandatory.”  Turning this option on will do two things:

  1. When Copy Document is done the “Appl.-to Item Entry” field is automatically populated with the cost layer of the original receipt
  2. If a user attempts to post a Purchase Credit Memo and the “Appl.-to Item Entry” field is blank they will receive an error message.   
April 2, 2013