Accounting System

Control in-transit and non-invoice inventory with the business system

2014/12/03

船上在庫やインボイス未到着在庫を業務システムで管理

For imports, the invoice arrives before the cargo.

In case of importing from abroad, usually invoice arrives first, and then the package arrives afterwards, but the production control system cannot register the invoice for the undelivered goods.

Therefore, unloaded invoices are recorded in the debt A/P of the accounting system, and in the case of packages in transit, they are recorded in the Good-In-Transit account in the automatic journalization generated at this time.

Automatic journalization from accounting A/P on arrival of invoice

  • Dr. Good-InTransit    Cr. A/P trade

When the shipment arrives in the following month or later, the production control system will process the incoming shipment and register the invoice, and the incoming shipment results will be interfaced to the accounting system.

The interface system checks the A/P invoice registration history of the accounting system based on the receipt of the production control system, and if the invoice has been registered, it generates a journal to transfer Good-In-Transit to Goods and registers it in the ledger (G/L) of the accounting system.

Automatic generation of G/L from the invoice registration process at the time of arrival of the package

  • Dr. Goods    Cr. Good-InTransit

The final settlement process is done as usual with the A/P cancellation function of the accounting system.

Delayed arrival of invoices in domestic transactions

If the invoice arrives within the month after the shipment arrives from the supplier, we will normally process the incoming shipment and process the invoice registration.

The interface system checks the A/P invoice registration history of the accounting system based on the receipt of the production control system, and if the invoice is already registered, it is registered in the A/P of the accounting system.

  • Dr. Goods    Cr. A/P trade

However, if the invoice arrives in different months, it gets more complicated.

However, the invoice registration needs to be done in the same month as the receipt of the goods because the system requires monthly processing.

In addition, for costing purposes, we want to reflect the materials that we put in as soon as they arrive to the manufacturing cost of the current month, so we need to register temporary invoices even though the invoices have not arrived at the end of the month, and close them and reflect them to the cost.

Automatic generation of a ledger (G/L) from the incoming and temporary invoice process at the time of arrival of the package

  • Dr. Purchase expense    Cr. A/P-In-Transit (A/P Accrued)

At the time of arrival of the invoice, the accrued account A/P Accrued will be transferred to A/P.

Automatic journalization from accounting A/P on arrival of invoice

  • Dr. A/P-In-Transit (A/P Accrued)    Cr. A/P trade

A/P-In-Transit (A/P Accrued) is not an expense, so it is difficult to translate it properly, such as an unrealized liability, a receivable in advance, or a provisional account payable.

Construction in progress and work in process

Construction in progress is a temporary account to manage construction, materials, labor and expenses that have been paid in advance or provisionally for the construction or fabrication of tangible fixed assets until the completion of the construction or delivery of the building.

In the case of the FOB's vessel delivery contract, when plant equipment is imported from Japan, it becomes the company's asset at the time of departure from the port. However, since the freight charge, taxes such as Bea Masuk and PPH21 listed in the PIB (Import Declaration Pemberitahuan Impor Barang), and CIF costs (Cost, Insurance and Freight) such as Surat Persetujuan Pengeluaran Barang (Customs Clearance Permit) costs are incurred after the fact, they are not included in fixed assets at the stage before the amount is determined, but are recorded temporarily in construction in progress.

The construction in progress account is limited to "fixed assets to be used by the company" and fixed assets under construction as "goods to be sold" are classified as "cost of uncompleted contracts", but I don't think there are many cases where this is separated in Indonesia.

If the inventory is to be sold in the future, it will be recorded in Work In Process.

    • Dr. construction in progress      Cr.current account
    • Dr. Tangible fixed assets    Cr. construction in progress

Inventory movement and Inventory Transfer

In many cases, non-manufacturing ERP package systems have inventory transfer processing but no inventory transfer processing, which is a limitation when applying non-manufacturing systems to manufacturing industries.

In the case of the manufacturing industry, the purchased goods go through various processes and change their shape until they are shipped as a product, but when the system for the non-manufacturing industry linked with the accounting module tries to meet the requirement that the material changes to the work in progress when the inventory is moved to the subcontractor, the following restrictions will appear

  1. You can't manage costs by numbering project codes on inventory moves (because you don't incur the expense).
  2. You can't change the item code for inventory management purposes when you move inventory (because it's only a location move).

The requirement that a project code be assigned when a material (R/M) is moved to a subcontractor and managed as a work in progress (WIP) for each project means that an automatic journalization is generated when inventory is moved and managed for each project in the ledger (G/L).

However, since the system assumes that there is no cost in inventory transfer, we can't assign a project code and add it as an expense to the work in progress account (asset account that is reflected in cost of sales COGS when the invoice is issued).

In order to assign project codes when moving items to subcontractors, manage costs per project in the ledger, and change item codes, it is necessary to generate a set of acceptance and payment results through inventory transfers. However, since it is a two-step process of payment and acceptance, the transfer will be performed in the following two journalizations.

  • Dr. Temporary    Cr. R/M
  • Dr. WIP       Cr. Temporary

If a project code has already been determined when a purchased item arrives, it is possible to have each project recorded in the material account when it arrives, and by having a project code in the ledger, it is possible to manage costs for each project.

Since we have a project code string when the material arrives, it becomes a question of when to make it a work-in-progress item for inventory management purposes.

However, in reality, there are few cases where the internal use of a project code or product group can be determined at the time of material purchase, and generally the use is determined in the process of receipt and payment, notwithstanding the production number management.

Timing of expenses and revenue generation

There are four times when expenses (revenues) are incurred in business systems

  1. At the time of invoice issuance (asset plus, sales plus)
  2. At the time of material consumption (R/M Usage) (cost of sales plus, assets minus)
  3. At the time of receipt of the invoice (cost of sales plus debt plus)
  4. When other expenses are recorded (expense plus, liability plus)

This means that you can attach a project code at the time of turning this into an expense (revenue).

If a project code cannot be assigned (expensed) due to an inventory transfer, then there will be no direct per-project cost control for material costs until the time of shipment.

Only factory overheads (FOH) and labor costs incurred during the manufacturing process can be managed by Subcomputer, and a total cost management table including direct material costs can be completed only at the time of shipment.

For material costs, etc., which are separately incurred by the subcontractor, the project code can be assigned at the time of arrival of the invoice from the subcontractor and can be transferred to cost of sales.

  • Dr. Expense work 100    Cr. A/P 100
  • Dr. COGS 100    Cr. Expense work 100

at the time of shipment

  • Dr. Shipping Clearing 100    Cr. Inv. Item 100

When Invoice is issued

  • Dr. A/R 100    Cr. Sales 100
  • Dr. COGS 80    Cr. Shipping Clearing 80

Offsetting by relative accounts

Transportation and other costs are also assigned a project code and accumulated into work-in-progress, and the accumulated work-in-progress becomes cost of sales when sales are recorded.

  • Dr. Biaya transportasi 100    Cr. Petty Cash 100

However, this expense should be reflected in cost of sales in the future as work in process.

In other words, the valuation of the work in progress goes up as soon as a cost is incurred.

  • Dr. WIP 100    Cr. Transportasi Payable 100

As mentioned above, the Contra account is an offset to a specific account, and Biaya transportasi (expenses) are transferred to work in progress using the temporary account (P/L account), but the balance of Biaya transportasi remains in the trial balance (T/B) and can be posted in P/L.

You cannot make P/L statements from T/B without a Contra account called Temporary account.

contra

Typical examples of a contra account are Allowance for Doubtful and Accumulated Depreciation. By indirectly reducing the assets in these negative asset accounts, we can manage the AR amount to match the amount of invoices generated and maintain the amount of fixed assets acquired, while understanding the Net amount after deduction on the B/S.

  • Dr. Provision for allowance for doubtful accounts (plus expenses)    Cr. Allowance for doubtful accounts (negative assets)
  • Dr. Depreciation and amortization of equipment (plus expenses)      Cr. Accumulated depreciation of equipment (negative assets)

How costs are allocated to the project

Direct material costs are automatically managed in the ledger with a project code as the key for each delivery, while labor and manufacturing overhead costs are allocated to projects at the time the amount is known (e.g. at the end of the month).

Labor costs are recorded as the cost for the project based on the "unit cost per hour x work hours" set in the employee master. However, only one time unit price can be set as the standard unit price, so increases in the unit price for attendance on holidays and overtime can be manually adjusted and reflected when costs are posted.

  • Dr. Salaries 200,000    Cr. Bank 200,000
  • Dr. WIP 200,000    Cr. Payrol payable (contra a/c) 200,000

Labor costs will also require a Contra account to be allocated to work in progress.

If you calculate labor and expenses at standard cost to determine the cost of the product during the month, you will need to make a journal to adjust the difference from the actual cost at the end of the month.

Impact on the cash flow of construction projects

In Indonesian factories, it is usual for the customer to receive a report of the completion of inspection after the product is shipped, and it takes about a week for the invoice to be issued. However, in the case of long term construction projects, the interval between shipment (service provision) and invoice issuance may be several months long, even if it is possible to bill in installments on a progression basis.

In this case, orders have been registered, but there is no sales, so the order backlog is piling up. You may be forced to look at your P/L in red, thinking that your profit on P/L will not go up because it will not be sales (profit), and you will be able to issue an invoice a month from now.

However, because they want to avoid getting a loan to pay the fixed costs, business owners ask their salespeople to issue the invoice as soon as possible. Then, the salesman manages to get the customer's approval for the division of the bill and takes a breather.

The reason the debt age table (Aging Report) is important to management is because it allows them to schedule future cash flows. However, if the order backlog is full, it is not possible to grasp accurate cash flow movements, so it is necessary to have a system to input the invoice issuance schedule at the order registration stage.