{"id":204,"date":"2025-05-12T21:35:04","date_gmt":"2025-05-13T04:35:04","guid":{"rendered":"https:\/\/www.apcdynamics.com\/articles\/?p=204"},"modified":"2025-11-04T04:35:31","modified_gmt":"2025-11-04T12:35:31","slug":"why-your-inventory-cost-is-wrong","status":"publish","type":"post","link":"https:\/\/www.apcdynamics.com\/articles\/why-your-inventory-cost-is-wrong\/","title":{"rendered":"Why Your Inventory Cost is Wrong"},"content":{"rendered":"

The Problem<\/strong><\/h1>\n

I hate beating a dead horse to death, but there are a couple of incidences that prompted me to write this article. Navision 1.0 has been out since 1996, yet it always astounds me when I walk into a company claiming that their inventory costing and cost of goods sold is incorrect because Navision is bugged. The first question I always ask is: Have you guys ran the Adjust Cost – Item Entries process? Most of the time, I get the blank stare asking what the hell I’m talking about.<\/p>\n

The Mandate<\/strong><\/h1>\n

Straight from the Dynamics 365 Business Central learning website:<\/p>\n

The cost of an item (inventory value) that you purchase and later sell might change during its lifetime, for example because a freight cost is added to its purchase cost after you sell the item. Cost adjustment is especially relevant in situations where you sell goods before you invoice the purchase of those goods. To always know the correct inventory value, you should regularly adjust item costs.<\/p><\/blockquote>\n

You can read more about the details of this function here:<\/p>\n

https:\/\/learn.microsoft.com\/en-us\/dynamics365\/business-central\/inventory-how-adjust-item-costs<\/a><\/p>\n

Basically, it updates your (Cost of Goods Sold) COGS and the Unit Cost on the item card to reflect the actual cost the item was brought in at (including any landed costs). Simply put, you MUST<\/strong> run this process BEFORE <\/b>doing any meaningful financial or costing analysis.<\/p>\n

It doesn’t matter what your costing method is. Doesn’t matter what your setup is. You HAVE to run this if you want to do inventory costing analysis in Dynamics 365 Business Central.<\/a><\/strong><\/p>\n

Here’s what the process looks like:<\/p>\n

\"Adjust<\/p>\n

If you don\u2019t run this process, even the most skilled financial analyst won\u2019t be able to accurately determine your true costs or fix discrepancies in your inventory values.<\/p>\n

Side Effects<\/strong><\/h1>\n

Note that if your company has never ran this before, or have not ran this in a long time, there may be detrimental affects on your inventory and COGS. Here’s a partial list of what you may encounter:<\/p>\n

    \n
  1. Your COGS on the General Ledger will go wild. This often happens because, when companies don\u2019t run the Adjust Cost process, they end up using general journal to post entries to \u201ccalculate\u201d what COGS should be. If you\u2019ve encountered backdated or unexpected cost adjustments, check out our guide on Preventing Adjust Cost \u2013 Item Entries from Back Dating in Dynamics 365 Business Central<\/a>. When you finally decide to let Dynamics 365 Business Central do what it\u2019s designed to do, those manual entries will need to be reversed.<\/li>\n
  2. Your Inventory G\/L Account will go wild. The reason is the same as above. The journal entries will need to be reversed.<\/li>\n
  3. Your item unit cost will go wild. The reason, again, is the same as above. A lot of times when you make an inventory journal adjustment to “take out” the inventory with the incorrect cost and positive adjust in the item with the correct cost, you are only doing it on the surface. The way NAV allocates and applies the inventory entries will most likely be different than what you adjusted.<\/li>\n<\/ol>\n

    Why Bother Going Though the Trouble?<\/strong><\/h1>\n

    Looking at the side affects, you may be wondering, why do I want to bother going through this process if I’m running fine as it is? The answer is simple, but it will reduce time and free up your company’s human resources to focus on important things. For clearer visibility into item costs and valuation accuracy, our Inventory Aging Report<\/a> add-on helps align inventory data with your General Ledger in real time.<\/p>\n

    Think about the manual spreadsheets and human memories that your people need to figure out what cost the item should be before you can quote a competitive price to your customers. Think about the time it takes your internal accounting staff to figure out what your bottom line should look like on the financial statement. Think about if those times are freed, what other amazing things your employees can come up with to make your business even better.<\/p>\n

    Conclusion<\/strong><\/h1>\n

    A lot of companies will give their Trial balance to their CPA and let them make do the calculation. But realize that what they’re doing is just an estimate. It is NOT accurate. The CPA’s priority is to make the number seem reasonable so they can do your tax return and having paper trail if there’s an audit. Their goal is not to get the accurate inventory cost.<\/p>\n

    Reconciliation is one of the most time consuming and useless tasks. Reconciliation only allows your accountant rack up billable hours.<\/p>\n

    Ask any good salesperson, having a quote rejected because they cannot get the competitive price to the customer is not only a colossal waste of time on the company, but also for the customer. It reflects on the reputation of your company<\/p>\n

    Ask any good business owner, not having accurate profit and loss for each transaction… Well, you get the idea.<\/p>\n

    Let Dynamics 365 Business Central do its thing so it can help your business can do your thing.<\/p>\n","protected":false},"excerpt":{"rendered":"

    The Problem I hate beating a dead horse to death, but there are a couple of incidences that prompted me to write this article. Navision 1.0 has been out since 1996, yet it always astounds me when I walk into a company claiming that their inventory costing and cost of goods sold is incorrect becauseRead more<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[3,6],"tags":[],"class_list":["post-204","post","type-post","status-publish","format-standard","hentry","category-costing","category-inventory"],"yoast_head":"\nWhy Your Inventory Cost Is Wrong in Business Central<\/title>\n<meta name=\"description\" content=\"Learn why your inventory cost is wrong in Dynamics 365 Business Central and how to fix inaccurate COGS and item costs.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, 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