Here’s a scenario I saw this week. A client buys a lot of items from a particular supplier and the supplier periodically gives them free items. So, if they buy a 1,000 items at $500 each, they might get 50 more free.
They don’t want to bring the free items in at $0 because that plays havoc with inventory valuation. They want to bring in all 1,050 items at the average price of roughly $476. No big deal right? Just receive all 1.050 items for $500k and GP will calculate the right per item value.
But what if the items get received over a multiple shipments and the free ones are at the end? They have to pay the invoices for the partial receipts in full and they get the free ones at the end.
Here’s what we came up with. (If you’ve got a better idea, drop a comment).
- Record the partial receipt at the ~476 average cost for all.
- On the same receipt we have a dummy service item that holds the difference and puts it to an accrued cost account.
This gets the receipt amount right for invoicing, but only applies the lower amount to inventory.
When the free items come in:
- Record the free items at the ~476 price as well.
- Add a trade discount line and send it to the accrued cost account to clear it.
Since these items are free, there is no invoice amount.
Yes, this adds another account to reconcile, but it gets everything in GP and this is only happens periodically. It’s regular, but not constant so the account will go to zero occasionally.