Concept: Inventory Accounting

Workday uses perpetual average costing to value goods at each site and updates the value when:

Each put-away transaction completes.
Workday recognizes an invoice price variance.
Workers perform manual cost updates.

Workday includes allocated freight, tax, and other charges for the on-hand value of purchased items.

When an inventory business process completes, Workday generates the operational journal for that transaction immediately. Workday also generates an accounting date for each inventory transaction that is the date the journal entry posts to the ledger. Workday enables you to:

Generate accounting for put-away, quick issues, moves, quantity adjustments, and shipments.
Generate accounting for stock transfers when ownership of goods changes between origin and destination site.
Mark up transaction costs when issuing goods from inventory.
Generate award cost processing for quick issues, shipments, and returns when issuing to a grant.
Analyze current book values.
Analyze active, on-hand inventory values.
Support costing transactions for all inventory items.
Generate accounting for splits across cost centers for stock requests, par replenishment, and returns.

When you process an invoice with a different approved price than the purchase order, Workday adjusts the value of goods to reflect the price paid.

You can configure how Workday accounts for excess variance when the invoices quantity exceeds the quantity of goods on hand:

Write off excess variance:
When the on-hand quantity is less than the invoice quantity, Workday only applies the price difference to the on-hand quantity, and writes off the remainder.
Workday calculates the new average cost by taking the ((
Unit Cost Variance
multiplied by the
Quantity On Hand
) plus the (
On-Hand Quantity
multiplied by the
Average Unit Cost
)) divided by the
On-Hand Quantity
.
Apply excess variance to current on-hand quantity:
Workday calculates the new average cost by taking the (
Total Variance
plus (the
On-Hand Quantity
multiplied by the
Average Unit Cost
)) divided by the
On-Hand Quantity
.

Workday writes off the total invoice price variance under any of these conditions:

The on-hand quantity of the invoiced item is zero.
Multiple sites receive a purchase order line.
There are multiple put-aways for the purchase order line and goods get put away into stocking locations with different worktags.
When you can't convert the invoice unit of measure (UOM) to the put-away UOM.

For any inventory transaction, Workday tags the accounting entries with the inventory site, spend category, and item.

Workday also populates accounting entries for inventory transactions with the related worktags from the item, spend category, and location you select. For each worktag type, such as a cost center, Workday associates only 1 value to the transaction. When there’s more than 1 default worktag value for a worktag type in the transaction, Workday uses this order of hierarchy:

Item
Spend category
Stocking location
Inventory site

The Location worktag is available on all inventory transactions. The worktag value is the inventory site where the transaction takes place. If there’s a Location worktag on an item or spend category, Workday ignores it.

For accounting purposes, you can enter worktags or override default worktags in these transactions:

Quick issues
Stock request issues
Ad hoc put-aways

Workday never generates accounting for these transactions that have items with an accounting treatment of

Expense

:

Adjustment
Issue
Move from
Move to
Picking
Shipment: If the stock request is a transfer order type and shipment is FOB Destination, or if the stock request is an issue order type and doesn't replenish a par location.
Put-Away: If it’s a transfer shipment put-away and goods are FOB Origin and there’s no change to worktags at put-away.

Workday never generates accounting for these transactions that have items with an accounting treatment of

Inventory Asset

:

Move from: If there's no change to worktags when you move goods.
Move to.
Picking.
Shipment: If goods on a transfer stock request are FOB Destination.
Put-Away: If goods on a transfer stock request are FOB Origin and there's no change to worktags at put-away. If you use a warehouse management system (WMS), Workday can access accounting entries for items stocked in your WMS. The WMS creates these accounting entries for put-away transactions and sends them to Workday:
Debit spend
Credit accrued liabilities

When there is a price variance and you select

Consolidate Transactions

on

Inventory Site Options

, the accounting journal entries on the supplier invoice behaves this way for bill and replace purchase orders:

The liquidating accrued liabilities entries display the same amount as the initial usage transactions.
Workday generates a new accrued liability debit entry that displays the total debit price variance for all transactions
The price variance consolidates into a single entry for both expense (debit) and accrued liabilities (credit), instead of separate lines per transaction.