Accounting

Inventory value in foreign prepayment scenarios

  • Reading time:7 mins read

I have this client who operates in very specific conditions: majority of their vendors are foreign companies which invoice them in a foreign currency (USD) and almost invariably ask for at least 50% prepayment.

NAV can handle prepayments and foreign currencies like a charm—the issue lies elsewhere: the fluctuations of currency exchange rate can easily cause real and tangible losses.

Even though prepayment invoice is fully closed by a prepayment applied against it, the actual costs of goods is not calculated from prepayment invoice, but from the actual invoice. And if there was difference between currency exchange rate at prepayment and invoicing dates, the inventory value reflects the actual invoiced value (instead of the prepaid value), there is currency exchange gain/loss which is fictitious, but taxable.

Thankfully, there are ways to avoid this.

Continue ReadingInventory value in foreign prepayment scenarios

Not-so-elementary costing: The Change

  • Reading time:5 mins read

They say the only constant is change. I’d say that the only other constant is error. We humans tend to err. Give a repeatable task to a human, and they’ll mess it up every once in a while. Some call it the human factor.

One of the many repeatable tasks in Microsoft Dynamics NAV is setting up items. If you remember my rant about mandatory fields, and how I said they were baaad, there might be an even more baaad kind of fields: the default value fields. Because the system simply inserts a value into these fields without asking for your say, and if anything is easy, it’s only so easy to overlook these. Yep, you have a chance to voice your oppinion on these, but having got to hurry for a cup of coffe with Mary from accounting, admit it, you’re gonna leave that default FIFO costing method for an item every once in a while, even though it should really have been Average. Then you’ll start posting. Then your phone rings and starts screaming at you about a moron who screwed up items again.

Continue ReadingNot-so-elementary costing: The Change

Purchasing Services: Inventory Value Zero

  • Reading time:4 mins read

I’ve stumbled recently upon a support request, where a partner asked if there was a possibility to register purchases of services in Microsoft Dynamics NAV. When it comes to selling services, such as consulting, or repairs, NAV is your true friend, because you can use Resources to register sales against them. However, purchase documents don’t offer a possibility of purchasing resources, so you are left to some workarounds.

Continue ReadingPurchasing Services: Inventory Value Zero

Elementary costing 3: FIFO, LIFO, UFO…

  • Reading time:8 mins read

Due to fluctuations in market prices, purchase cost of goods may vary from one purchase to another. Also, you rarely just purchase goods and immediately sell them in the same quantity. What you usually do is that you purchase the goods, then let them sit in the inventory for a while, then you may sell five different purchases all at once, or you may sell goods from one purchase to five different customers.

All of these situations have different effects on your inventory value, because something else must be taken into account: cost flow. Regardless of the inventory valuation method you chose, whenever you take an item from the inventory, how do you know its cost? Without knowing its cost, you can’t know the cost of goods sold, so you better know your cost. Don’t tell me you stick the purchase price to each item, so that you can know exactly how much it cost whenever you are about to sell it, because accountants won’t subscribe to the idea.

Continue ReadingElementary costing 3: FIFO, LIFO, UFO…

Elementary costing 2: Know your costs

  • Reading time:9 mins read

When you buy a sheep, how much is it worth to you, what is its value? For starters, its value is at least what you paid for it, but that’s not quite it. Say you paid a hundred dollars for it. If you want to sell it now, how do you determine your selling price? A hundred-twenty? A hundred-fifty? Obviously, you need to increase the price by some percentage over whatever you paid initially, but regardless of what you increase your price, if you don’t know your true costs, you might be at loss.

Continue ReadingElementary costing 2: Know your costs

Elementary costing 1: Sheep and bricks

  • Reading time:5 mins read

Unless you are a non-profit, the point of the business is making money. It is surprising how many different ways of making money there are out there, but if you are in business, it is extremely likely that you make the money the easiest and the most common way around: by selling goods.

There are many ways goods come to be, but from perspective of a single business goods can be either purchased, or manufactured. But even companies manufacturing the goods they sell have to somehow get hold of the raw materials used to produce their goods. The most common way to get the raw materials for your manufactured goods is to purchase them. So in the end of the day it comes down to the simple fact that the most common way of making money is by purchasing and selling goods.

Continue ReadingElementary costing 1: Sheep and bricks

Accounting vs. ERP: The saga continues

  • Reading time:7 mins read

Running a business using only accounting data can be pretty much the same as driving a car using rear-view mirror only. The purpose of accounting is to provide accurate and reliable overview of financial situation to interested parties. What this financial overview consists of is the stuff that has happened in the past, in other words: history. However, there are many drivers of business success other than just history of events that contributed to wherever you are at the moment.

Continue ReadingAccounting vs. ERP: The saga continues

Accounting vs. ERP: Sticks and carrots

  • Reading time:8 mins read

When referring to their ERP systems, it is pretty common that customers refer to it as accounting software. While it is true that every ERP system embeds some accounting functionality, there is a major difference between these two categories of software. It starts with two things: what computers are good at, and the goal of accounting as a discipline.

Continue ReadingAccounting vs. ERP: Sticks and carrots