How to configure Expected Cost Posting with Interim Inventory in Dynamics 365 Business Central

The purpose of the Interim COGS Account is to record inventory value that has shipped but has not been invoiced to the customer. It is a Balance sheet Account, not an Income Statement account, as some would expect.

If your company ships and invoices in a single step, it doesn’t have an effect. But if you ship then wait before invoicing, it can have a major effect. Some exporting companies wait until the goods have arrived at their destination before booking the revenue. During this time, the inventory has left the perpetual inventory but needs to stay on the Balance Sheet until the revenue is recognized.

The key to understanding how Expected Cost Posting to G/L works is being aware that there can be two types of Value Entries. For instance, when a purchase order is received but not invoiced, Business Central automatically enters a Value Entry with an expected cost. When that purchase is invoiced, Business Central automatically enters a Value Entry that reverses the original expected entry with the expected cost and replaces it with one with the actual costs.

Purchase Order Received, but not invoiced:

Debit Interim Inventory (Expected Amount)

Credit Received but not invoiced Accounts Payable Accrual (Expected Amount)

When the Purchase Receipt is invoiced:

Debit Received but not invoiced Accounts Payable Accrual (Expected Amount)

Credit Interim Inventory (Expected Amount)

Debit Inventory (Actual Amount)

Credit Accounts Payable (Actual Amount)

Ship Order but not Invoiced:

Debit COGS Interim (Unit Cost)

Credit Interim Inventory (Unit Cost)

When the Shipment is Invoiced:

Debit Interim Inventory (Unit Cost)

Credit COGS Interim (Unit Cost)

Debit COGS (Actual Cost)

Credit Inventory (Actual Cost)

You can see that we have both purchase receipts and sales shipments coming out of the same Interim Inventory Account, which may be hard to reconcile to the Inventory Sub-Ledger. There is a report in Business Central called the “Inventory to G/L Reconciliation Report”. In that report, we will find the “Received but not Invoiced” and “Shipped but not Invoiced”. The Shipped but not Invoiced on the report should tie to the COGS Interim account. If you subtract the COGS Interim amount from the Interim Inventory Account, it should tie to the Received but not Invoiced Amount on the report.

Step 1:

Create three G/L Accounts on the Balance Sheet:

Step 2:

Map the Inv. Accrual Acct and COGS Interim Acct to the General Posting Setup:

Step 3:

Map the Interim Inventory Account to the Inventory Posting Setup:

Step 4:

Enable the Expected Cost Posting switch on the Inventory Setup. Click OK on the Message:

When a purchase order is received, these two accounts are hit:

When the PO is invoiced, the amounts are reversed with these additional entries to the G/L:

When a Sales Order is shipped, these two accounts are hit:

When the SO is invoiced, the amounts are reversed with these additional entries to the G/L: