Ed Gutkowski, Chief Architect - RapidReconciler, Products
In the last edition of the GSInsider, I discussed the role GL class codes play in the inventory reconciliation process, where they are located, and how they are used. The next step includes understanding what happens when one of the codes changes. Let's say we have 2 classes of items, Raw Materials (GL Class code = RM01) and Finished Goods (GL Class code = FG01). A raw material item is then received for $100 with the debit going to the raw material account.
After the receipt has been completed it was determined the item was actually a purchased finished good, so a change to the GL class code is required. Where do we need to change it? In my experience, most companies have different answers to that question. Out of the four levels we spoke of previously, very few will make the proper changes. At a minimum, the change should occur at levels 2, 3, and 4, in order to ensure all transactions post properly going forward.
But was that enough? If you answered yes then you would be INCORRECT! Remember the dollars? The $100 remains in the raw material account! How do we move it to finished goods? Well you could just do a reclassification entry, provided accounting is informed every time a class code is changed. Or you could use the process outlined below:
Before changing the GL class – do an inventory adjustment on the item to bring the quantity to 0.
Change the GL class code at levels 2, 3 and 4 at a minimum.
Adjust the inventory quantity back.
Not only will this process move the dollars, it also provides a side benefit of "closing out" the GL class code in the cardex. That last statement sure could use further explanation, which we'll cover in a future article.
In summary, since GL class codes have a profound impact on the reconciliation process, it is important to understand where they are located, how they are used, and to deploy a proper change procedure to reduce reconciliation errors.