Product receipt postings with and without Item Requirement on the Project

Item requirements NOT used on the project

When the Item requirements are not used on the Project, then at the time of Project PO receipt postings, cost is not consumed on the project. Please find below the postings at the time of product receipt and supplier invoice.

PO created for an Item A for GBP 4000.

PO receipt postings

Dr Cost of purchase material received 4000
   
      Cr Purchase accrual 4000
   


PO invoice posting

Dr Project Cost 4000
      Project WIP cost item 4000
      Purchase accrual 4000
      Cost of purchase materials invoiced 4000
      VAT 800  

      Cr  Stock Issue 4000 
            Project cost item 4000
            Cost of purchase material received 4000
            Supplier 4800

Stock Issue posting is taken from:

Stock management > Setup > Posting > Posting

Item requirements used on the project

When the Item requirements are used on the Project, then at the time of Project PO receipt postings, cost is consumed on the project. Please find below the postings at the time of product receipt and supplier invoice.

PO created for an Item A for GBP 4000.

PO receipt postings

Dr Cost of purchase material received 4000
      Project WIP cost item 4000
      Project Cost 4000

      Cr Purchase accrual 4000
            Project cost item 4000
            Cost of units invoiced 4000


PO invoice posting

Dr Purchase accrual 4000
      Cost of purchase materials invoiced 4000
      VAT 800  

      Cr Cost of purchase material received 4000
            Supplier 4800

Cost of units invoiced posting is taken from:

Stock management > Setup > Posting > Posting

If you compare both the postings you will notice that the postings are almost the same other than timing of them getting posted in the system.For the product receipt posting where the item requirement is used, the additional posting of the project costs are the ones which are posted normally at the time of invoicing when the item requirement is not used.

One other difference is the use of  'Cost of units invoiced' instead of 'Stock Issue' at the time of posting the receipt when the 'Item requirement is used. The reason the posting is taken from Sales Order section is, Item requirement creates a SO in the background to get this cost posting on to the project. It replaces the 'Stock Issue' posting highlighted in RED above with the  'Cost of units invoiced' .


Latest update (29th July 2019)

The above postings are seen when the costs are set to go to 'Balance'. If the costs are set to go to 'P&L' then the following postings are seen for "Item requirements used on Project":

PO receipt postings

Dr Cost of purchase material received 4000 
      Project Cost 4000 
     
      Cr Purchase accrual 4000 
           Cost of units invoiced 4000 


PO invoice posting

Dr Purchase accrual 4000 
      Cost of purchase materials invoiced 4000 
      VAT 800   

      Cr Cost of purchase material received 4000 
            Supplier 4800

The interesting thing is though this is an 'Item' type of posting, no posting is to be set for 'Cost - item' and 'WIP - cost value - item'. Ideally, as the project 'Item' costs are set to go to 'P&L' but still no postings are posted, in this case, to 'Cost - item'. Does anyone know whether what i have inferred based on my testing, is correct or not? Please let me know if I am wrong here.

One more interesting thing is, on the 'Stock' posting side, even though postings are not required for 'Purchase expenditure for expense' and 'Purchase expenditure, un-invoiced' system still demands it. I got rid of this issue by setting an error / temporary account (which is out of reporting range).

If I get any further information on this topic, will update.

Thanks
Sarang

Item setup with respect to Procurement category and Project Category.

Item to Procurement category relation

Many items can be a part of single Procurement category. This relation can be obtained by attaching each item with the procurement category from the 'Product categories' option on the 'Setup' tab on the action pane.

When the PO is to be created for all the items related to one procurement category, then on the PO header, the click on the 'Add products'.

This will display the below window, wherein the user will have to select the appropriate procurement category and then the items related to it to be included in the purchase order and then click OK.

This will create relevant lines in the PO with different items linked to the same procurement category.

Note:

1. PO created for Items linked to Procurement category - When the posting setup is done for item as well procurement category, then in the case where the PO is created for the different items but same procurement category, the posting setup against the individual 'Item' will be used.
2. PO created for Items  - Posting setup against the individual 'Item' will be used.
3. PO created for Procurement category - Posting setup against the individual 'Procurement category' will be used.

Item and Procurement category to Project category relation

Items and Procurement categories can be linked to the project categories, so that they can be used for postings in the projects.

Project category is setup on the Item at:

Project category is setup on the Procurement category at:

Product information management > Setup > Categories and attributes > Category hierarchies

Thanks
Sarang

Project postings with Billing Rule

When Progress Billing Rules are used on the Time and Materials project, then the following things should be kept in mind:

1. The postings setup at the group level for On-accounts and Fee, does not matter. The revenue is directly posted to PNL.

Revenue is posted to à Invoiced revenue (CR)

Accounting entry is as follows:
                       DR Accounts Receivable

                           CR Invoiced revenue

                                        CR VAT payable

2. When the billing rules are used, the revenue cannot be accrued even if the 'Accrue revenue' is checked on the 'Line property' and in the 'Project group' against individual transaction types. With use of progress billing rule on the time and materials project, there is no way one can accrue the revenue, if at all during the month end there is no billing and the user wishes to accrue the revenue. The problem with this kind of behavior is the costs are posted to PNL but the revenue cannot be accrued, if there is no billing at the month end.

3. Chargeable categories on the billing rule are of type 'Hours' and 'Item' ONLY. Not sure why but this is how standard system works. The implication of this is, that for 'Progress' billing rule if the budget is defined for hours and expenses and the transactions posted for the same, when the invoice proposal is created the revenue / invoice amount is calculated with respect to Hours transactions only. The calculation does not take into consideration the expense transaction.

The ‘Chargeable’ categories in the Billing Rule only allows Hours and Items categories. Expense categories are not allowed, rather they are not even there for selection.

With this I created a project with Budget and Billing rule as below:

Hours – 10,000 – Account Admin

Expense – 10,000 – Travel air

Total budget of 20,000.

Billing rule contract value – 100,000

I posted an expense journal of 4000 and created an invoice proposal. No invoice amount was calculated by the system as expense categories are not allowed in the chargeable categories.

I posted an hours journal of 5000 and created an invoice proposal. This time the invoice proposal is for 50,000, as the % complete is 50%. (5000 against 10000)

But this standard behavior of billing rule with respect to expense seems to be wrong as from a total budget perspective I am 45% complete (9000 against 20000).

4. When the billing rule is used on the time and materials project, then even if the transactions are posted as 'Chargeable' / 'Bill' (.i.e. line property = Chargeable), when they are actually posted on the project the invoice status changes to 'Non-chargeable'.

Hours transaction set to go to 'PNL' on project group and Line property = Bill, for a project WITH 'Billing rule'

Hours transaction set to go to 'PNL' on project group and Line property = Bill, for a project WITHOUT 'Billing rule' 

Will update this post as and when more information is obtained about this area.

Thanks

Sarang

On account postings with respect to BS and PNL

On account set to à PNL 

Revenue is posted to à Invoiced – On account (CR)

Accounting entry is as follows:

DR Accounts Receivable

                           CR Invoiced – On account

                           CR VAT payable

On account set to à BS 

Revenue is posted to à WIP Invoiced – On account (CR)

Accounting entry is as follows:

DR Accounts Receivable

                           CR WIP invoiced -On account

                           CR VAT payable

On account set to à PNL with Deduction type transaction

Revenue is posted to à Invoiced – On account (CR)

Accounting entry is as follows:

DR Accounts Receivable

                           CR Invoiced – On account

                                       CR VAT payable

When deductions included at the time of invoice posting

DR Invoiced – On account  

   CR Invoiced revenue

On account à BS with Deduction type transaction

Revenue is posted to à WIP Invoiced – On account (CR)

Accounting entry is as follows:

DR Accounts Receivable

                           CR WIP invoiced - On account

                           CR VAT payable

When deductions included at the time of invoice posting

DR WIP Invoiced – On account

CR Invoiced revenue

Thanks

Sarang

Item requirement and Project PO receipt postings on project

Out of the box, whenever the project PO is receipted (Product receipt posted), the accrual transactions are posted on the GL (General Ledger) level but the cost is not posted on the project. The cost is posted on the project or consumed on the project only after the project PO is invoiced updated (Supplier invoice posted). To make the project PO receipt reflect on the project, there are parameters to be looked into. They are:

1. Include physical value on the Item model group
2. Create item requirement on the Project parameters
3. Item consumption on the Project parameter

'Include physical value' on the Item model group - This is a MUST if you wish the project to consume the cost at the time of product receipt. This parameter woks in conjunction with the other two parameters mentioned above. Assuming the other two parameters to be checked and assuming that this is NOT checked, then the relevant accounts will not be hit and the product receipt will have no impact on the project cost.

'Include physical value'

'Create item requirement' on the Project parameters - To allow the project to consume cost at the time of product receipt of the project PO, ITEM requirement is a MUST. If there is no item requirement, then the product receipt for the project PO, will not post any cost on the project. Item requirement can be created manually on the project as well. But the  significance of this parameter is, it creates the Item requirement record automatically, at the back of the project PO creation. The moment the project PO is created, the item requirement will also be created, if this parameter is checked. If 'Include physical value' is checked and 'Create item requirement' is also checked but 'Item consumption' is NOT checked, then at the time of product receipt the system will display a pop-up asking the user to click 'Yes' if he/she wishes to consume cost on the project.

'Item consumption' on the Project parameter - If the 'Create item requirement' is checked and if you wish to automatically consume the cost on the project at the time of product receipt, then user should check the 'Item consumption' parameter to 'Yes'. However if the 'Create item requirement' is turned off, but this parameter is turned on, the cost can be consumed on the project at the time of product receipt by creating the Item requirement manually and then posting the product receipt.

'Create item requirement' and 'Item consumption'

To sum the entire interaction between these 3 parameters and what needs to be done in each scenario with respect to the cost consumption on the project at the time of product receipt, i have created this table:

Three parameters and Project Cost consumption on Product Receipt

Thanks
Sarang