Use Case: How to configure the General Posting Setup for a Retail or Wholesale Distribution company by mapping the correct G/L Accounts to Sales, Purchase, Inventory, Direct Cost Applied, and Cost of Goods Sold accounts.
In the Cronus company, the Chart of Accounts is missing General Ledger Accounts that would provide more insight into the retail company’s operating performance. On the General Posting Setup, you can create and select G/L Accounts for each category. In the Cronus Company, the Direct Cost Applied Account was not mapped correctly. It is mapped to the Inventory Account when it should have been mapped to a G/L account called Direct Cost Applied.
Step 1:
Copy the Cronus USA company to Cronus DCA (Direct Cost Applied) so we are demonstrating two identical databases.
In the Cronus USA company, we will Post a Purchase Order and Sales Order identical to transactions in the Cronus DCA company. We will then compare the Chart of Accounts in Both companies. On the General Posting Setup Table, notice the Purchases Account AND Direct Cost Applied are both mapped to Inventory G/L 10700 and will show how this is incorrect after posting both the Purchase and Sales transactions. To simplify the transactions, no sales tax has been charged:
Step 2:
To demonstrate how these transactions post to the General Ledger; on the Inventory Setup Page, enable Automatic Cost Posting and set Automatic Cost Adjustment to Always.
If Automatic Cost posting is not enabled, two functions will need to be performed: Adjust Cost – Item Entries and Post Inventory Cost to G/L. Create and post the following Purchase and Sales Orders:
Step 3:
In the Cronus USA company; on the Chart of Accounts, these transactions will appear on G/L Account No: 10700, 40200, and 50100:
This is how the posting algorithm works in Business central:
Purchases Sales
1. Debit Inventory Credit Inventory
2. Credit Direct Cost Applied Debit Cost of Goods Sold
3. Debit Purchases Credit Sales
4. Credit Accounts Payable Debit Accounts Receivables
Since the General Posting Setup has been mapped incorrectly on purchases, Inventory (G/L 10700) is debited $4,684.20 for Item 1896-S, then credited $4,684.20 instead of posting to Direct Cost Applied. Then Debits Inventory again for Purchases (Items 1896-S and 1968-S) $5,572.80
On the Sales transaction, Inventory (G/L 10700) is credited $4,684.20 for Item 1896-S, then debited $4,684.20 to Cost of Goods Sold. The system then credits Income, product Sales for Items 1896-S and 1968-S $7,145.40
Step 4:
In the Cronus USA Copy company; the correct way to map these accounts are as follows:
On the Chart of Accounts, create accounts for Purchases G/L 50010 and Direct Cost Applied G/L 50050. Because Direct Cost Applied is a Contra Purchases account and always nets to zero, this allows the User to see the total of Item purchases without affecting the Cost of Goods section Totals in the Chart of Accounts.
Step 5:
Since the Cronus USA Copy company is an identical database to the Cronus USA company, the number series will advance to the identical Purchase Order and Sales Order numbers. Create and post the same Purchase and Sales Orders as above.
Step 6:
On the Chart of Accounts, Income posts the same as in the Cronus company. On the Cost of Goods Sold section, Purchases are now identified. The Direct Costs Applied contra account nets these transactions to zero, leaving Income less Cost of Materials equals Gross Profit:
Step 7:
On the Inventory Account, the Purchase transaction posts correctly. The Sales Transaction posts the same as in the original transaction:
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