Pre-requisite
Before standard cost is updated in Accounting Seed users should run a report on the quantity available by product on the inventory balance and compare this to the quantity available in the general ledger. An inventory adjustment should be made to synchronize any differences between the quantity available for the product in the general ledger and the inventory balance before an update of standard cost is done.
 
Updating Standard Cost
The unit cost for a product should be updated to better match market values periodically. Accounting Seed recommends reviewing your product standard cost at least once every 3-12 months. To update standard cost the quantity in the inventory balance should match the quantity available in the general ledger. If the 2 balances do not match perform an inventory adjustment to synchronize the balances. To update the standard cost perform the following steps:
 
1. Run a report on the inventory balance taking the quantity available and multiply it by product unit cost field. The quantity available times the product unit cast will give you the total inventory value. 
  • Quantity on Hand
  • Total inventory value
  • Ledger Cost per unit
2. The ledger cost per unit needs to be compared to the new standard cost per unit. The difference should be booked to the General Ledger at the product level, via a journal entry.
 
3. After the adjustment to the General Ledger is made the standard unit cost per product should be updated on the product master.
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4 Comments

  • 1
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    Rebecca Ralls

    The recommendation on this article to perform an inventory adjustment to bring the GL in line with the Inventory balances makes the assumption that the GL is correct.

    In my experience, it is just as likely (or even more likely) that it is the quantity in the GL that is incorrect and the Inventory Balance that has the correct quantity which has to be corrected with a Journal entry (or a correction to the transaction that generated the discrepancy, if you are able to research that deeply).

    For a change in standard cost, as well as for month end inventory reconciliations, it would be more correct to advise doing a physical count of the inventory balances, and/or an analysis of whether all SO that have been billed have also been allocated, before determining what adjustments need to be made and whether that adjustment should be an inventory adjustment (or clearing up a missing/forgotten allocation) to bring the Inventory Balance in line with the GL, or a journal entry (or posting a forgotten Billing)  to bring the GL in line with the Inventory Balance.

  • 0
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    James Pullman

    Is this article referring to Standard Cost or Price? Two very different things, cost being our cost of the product, price being what the customer pays us. 

    I think Acct Seed confuses these two words and it causes confusion amongst our users. Salesforce refers to "Price Books" and "Standard Price" book in regards to quoting and customer sales process, so that should remain how Acct Seed refers to it in the customer facing records like sales order lines, and cost should be used separately on Product object for adding our costs and PO lines which are our costs.

    Can you clarify what this article is speaking in regards too? Thanks!

  • 0
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    Tony

    Hi James,

    The article is speaking about cost. The cost you pay is the "price" your vendors charge you at. This is completely separate than Price Books, which you have defined correctly as the price you charge your customers. 

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    James Pullman

    Thanks Tony, yea I think referring to them as 2 different things our "cost" = vendor "price" even though they are the same is what is confusing. I put in a feature request to make the syntax correct and consistent. Even though Acct Seed doesn't deal directly with price book entry, price books, standard price I think it makes sense to use that work "price" for all customer facing amount labels and "costs" for our procurement amount label, especially on PO lines. 

    Thanks for the quick response!

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