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Adjusting Unit Cost for a LIFO or FIFO Product

In Aptify, the unit cost for individual units of LIFO (Last-In First-Out) and FIFO (First-In First-Out) products are tracked in Product Inventory Ledger Entries (PILEs). As described in Adding Inventory , an organization specifies inventory unit cost on the Purchase PILE created to add the inventory to the system so it is available for sale.

However, in some cases, an organization may need to add the inventory to the system to begin selling it without knowing the actual cost of the units. Then, at a later date once the actual cost is known, the system needs to be updated to reflect the true product cost.

The following procedure describes how to adjust the Unit Cost for LIFO or FIFO inventory that was previously added with an estimated unit cost:

  1. When the units are received, create a Purchase PILE, as described in Adding Inventory using the estimated unit cost.
  2. When the final cost is known and you are ready to adjust the inventory cost, open the original Purchase PILE and do the following:
    • Identify how many units from the PILE have already been shipped to customers. This is the Quantity minus the Entry Qty. Balance. In the figure below, 10 units have shipped and 90 units remained tied to this PILE (100-90 = 10). The units that have shipped already have general ledger (GL) entries generated for them in the system.

      Purchase PILE with Estimated Cost
  3. Create an Adjustment PILE that removes the remaining units tied to the original PILE from inventory.
    1. Specify the original Purchase PILE ID in the Original PILE field.
    2. Enter the date from the original Purchase PILE in the Date field.
    3. Change the Type to Adjustment.
    4. Enter the number of units to remove as a negative Quantity.
    5. Enter the original, estimated unit cost in the Unit Cost field.

    Adjustment PILE

  4. Create a new Purchase PILE to add the units back into inventory at the correct Unit Cost.
    1. Leave the Original PILE field blank.
    2. Enter the date from the original Purchase PILE in the Date field. This ensures that the units are shipped in the correct order for the product's cost method.
    3. Leave the Type set to Purchase.
    4. Enter the number of units to add back into inventory in the Quantity.
    5. Enter the actual unit cost in the Unit Cost field.

    New Purchase PILE

  5. If units have already shipped units from the original PILE, create a Scheduled -Transactions record to adjust the GL entries for the units that have already shipped.
    1. Click the Product Inventory Ledger Entry Transactions tab on the new Purchase PILE you created in the previous step.
    2. Open a new Product Inventory Ledger Entry Transactions record and click the Scheduled Transaction link to open a new Scheduled Transactions record.
    3. Enter the date and a description, and select Other as the Type.
    4. Specify the Organization to which the transaction applies and the appropriate Currency Type.
    5. Create counter-balancing GL entries to debit or credit the COGS and Inventory accounts used by this product in the amount of the adjustment.
      1. For example, if the actual unit cost is $1 higher than the expected cost, then the Cost of Goods Sold should be $10 higher for the products that have already shipped (and the inventory reduction should be $10 more as well). In this case, the COGS account would be debited an additional $10 and the Inventory account would be credited an additional $10.
      2. Contact a member of your accounting department if you need assistance determining the proper entries to create.

    Scheduled Transactions Adjustment Record

  6. Save and close the Scheduled Transactions record when finished. Also, confirm that it is properly linked to the Purchase PILE for record keeping purposes.

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