Dynamics NAV \ Business Central – Thoughts on the Direct Costs Applied and Purchases Accounts

Gavin Whittaker1 Comment

Background

One thing I’ve noticed when posting Purchase Invoices with Inventory items in Dynamics NAV \ Business Central are the additional distributions to the Direct Cost Applied and Purchases accounts?

I’ve never been quite sure what the Direct Cost Applied account is, and when I’ve looked into it, I can’t find much information out there either. While researching for a previous post (here) a theory struck me for why the system might be posting to this account. Therefore, in this post I’ll detail my thoughts as to why Dynamics NAV \ Business Central posts to the Direct Costs Applied and Purchases accounts when posting Purchase Invoices using Inventory Transactions.

Purchase Invoicing in Dynamics GP

Firstly, I’ll go back to my roots – let’s see what distributions Dynamics GP creates when posting a Purchase Invoice with an Inventory Item. In this example we are receiving the Item and posting the invoice at the same time. Dynamics GP calls this a Shipment \ Invoice.

Dynamics GP – Shipment\Invoice Distributions

As you can see the distributions created are as follows:

Debit: Inventory

Credit: Accounts Payables

Debit: VAT

This would also create one General Ledger Journal in Dynamics GP (G/L Register is the NAV\BC equivalent) with one Source Document (Source Code is the NAV\BC equivalent).

I’m not an accountant but this makes sense to me. We bought something for £6 so we have a Credit postings to Accounts Payables. We have increased our Inventory so we have a £5 Debit to Inventory, and finally a Debit to VAT.

As this is not an expense invoice there are no P&L implications at this point. We will have Cost of Goods Sold postings when we sell the item.

Purchase Invoicing in Dynamics NAV \ Business Central

When I post a Purchase Invoice for an Inventory Item in Dynamics NAV \ Business Central the distributions created are below. (*Please note I have Automatic Cost Posting switched ON in Inventory Setup)

General Ledger Entries – Purchase Invoice – Automatic Post to GL switched OFF

There’s a couple of things to note here. Firstly, there are two more distributions when compared to Dynamics GP. We have distributions to the Direct Cost Applied account (7191) and the Purchases account (7110). Secondly, some GL Entries have a Source Code of PURCHASES and others have a Source Code of INVTPCOST.

Why the extra distributions?

If we dig deeper and go to the G/L Registers for this Purchase Invoice we can see the system has created two separate G/L Registers.

This G/L Register for the PURCHASES portion of the transaction:

G/L Register for PURCHASES

And this G/L Register for the INVPTCOST portion of the transaction

G/L Register for INVPTCOST

The system has created two G/L registers because in Dynamics NAV \ Business Central you can defer the INVPTCOST portion of the GL postings via the “Automatic Cost Posting” option in the Inventory Setup.

Because of this each of these separate G/L Registers needs a balancing entry in order for the debits and credits to balance and the posting to work. In the case of the PURCHASES G/L Register of the transaction the 7110 Purch, Retail account is used and for the INVPTCOST G/L Register the 7191 Direct Cost Applied account is used.

One Possible Conclusion

Based on these findings one theory I have for the postings to the Purchases and Direct Costs Applied accounts when dealing with Inventory Items is to accommodate the Automatic Cost Posting option in the Inventory Setup. (the ability to defer the posting of the Inventory portion of the transaction). It could also be because for other aspects of the costing engine that I haven’t delved into yet.

If this option didn’t exist, and Inventory postings were always posted in real time, I can’t see why there would be a need to post to these additional accounts.

This is just an observation. I have no clear evidence to back this up. I’m just a Dynamics NAV \ Business Central newbie wondering why this works differently to Dynamics GP.

Above all I’m here to learn so if there are other reasons for the additional distributions I’d love to hear them.

Thanks for reading!

UPDATE: I’ve also created a YouTube video on this subject 🙂

Dynamics GP – Letter Writing Assistant – Letter Templates missing following upgrade to Dynamics GP 2018 R2

Gavin Whittaker1 Comment

Following a recent client upgrade of Dynamics GP to version 2018 R2 I found that when selecting “Write Letters > Print Debtors” the window was blank:

I opened the C:\Program files (x86)\Microsoft Dynamics\GP2018R2\Data\DEX.INI file to find the Letters Directory location and when I checked each sub folder in this shared folder the word documents (.DOC files) were present.

On investigation it seems previous versions of Dynamics GP used to expect files in the DOC format however its now expecting them to be in the DOCX format. Therefore, I opened each one and saved them as DOCX files and they are now available.

I hope this helps anyone else who may encounter this issue.

Thanks for reading

Dynamics NAV \ Business Central – An observation with G\L Registers, Source Codes and Inventory Transactions.

Gavin Whittaker1 Comment

Background

As I’ve mentioned previously I mainly come from a Dynamics GP background. Recently I’ve been posting transactions in Dynamics NAV \ Dynamics 365 Business Central and trying to follow things through to the General Ledger entries as I try and piece together how the system works.

Why two G\L Registers?

When you post a transaction in Dynamics NAV\Business Central General Ledger Entries are automatically created. You can view these by looking at the G\L Register.

G\L Register

When posting a Purchase Invoice for an Inventory Item and viewing the G\L Register one thing stood out. Instead of one set of G\L Registers for the transaction there were two? Furthermore, one set of G\L registers had a Source Code of PURCHASES (G\L Register No 898) and the other set of G\L registers had a Source Code of INVTPCOST (G\L Register No 897)

G\L Register for Purchase Invoice

Coming from a Dynamics GP background this seemed quite strange? I can see WHAT the system is doing, its splitting out the inventory postings, but I couldn’t understand WHY it was doing this? In Dynamics GP all the General Ledger distributions for this one transaction would have been posted and given one G\L Register No (or Journal Number in Dynamics GP) and one Source Code. (or Source Document in Dynamics GP)

So why two sets of General Ledger postings? Why not just post one set of General Ledger posting which included all the General Ledger distributions for this one transaction?

To test things further I posted a Sales Invoice for an inventory item and the same thing happened? Two sets of General Ledger posting and two different Source Codes:

One Conclusion

After playing around a little more it finally dawned on me why it could be splitting this one transaction out into two G\L registers, with two Source Codes, rather than making one posting like Dynamics GP.

There’s a setting in Inventory Setup called Automatic Cost Posting that you can switch ON or OFF. Throughout my testing this had always been ON.

However when I tested posting a Purchase Invoice with this switched OFF I found you don’t get any inventory related postings.

With the option switched OFF its only when you subsequently run the Post Inventory Cost to G/L batch job that the inventory postings are made.

So, in the case of my Purchase Invoice earlier, if Automatic Cost Posting had been switched OFF, only one G\L register with a Source Code of PURCHASES would have been posted.

Therefore, my assumption is that one of the reasons Dynamics NAV \ Business Central creates separate G\L Registers and Source Codes for transactions with Inventory is because the system might not immediately post the Inventory postings when you post the initial transaction. Depending on the Automatic Cost Posting setting it could post the Inventory part of the transaction hours, days or weeks later. (basically when the Post Inventory Costs to GL batch job is ran)

I still need to do lots more reading and studying on Inventory costing and Inventory accounting in Dynamics NAV\Business Central so in time I may see other reasons but for now this seems like one reasonable explanation.

If someone knows of other reasons, I’d love to hear them 😊.

Thanks for reading.