Purchase Price Variance Allocation: Example 2

This topic describes all the documents that you would have to create and the transactions generated for these documents for the following scenario:

The Inventory Account mode is selected for allocation of purchase price variance (PPV) amounts.
Purchased items have the Average cost valuation method assigned.
Between the date of the receipt and the date of the bill, some quantities of the purchased items were issued (sold).

Step 1. Creating a Purchase Receipt

By using the Purchase Receipts (PO302000), suppose that you create a purchase receipt for the following items.

Table 1. Purchase Receipt
Item	Quantity	Unit Cost	Amount
Item1	10	250	2500
Item2	23	120	2760
Item3	15	380	5700
Total:			10960

As a result, an inventory receipt is created and released. On its release, the following transactions are generated.

During the next few days, you sell some quantities of the items. The inventory issue is generated with the following lines.

Table 3. Inventory Issue
Item	Quantity	Unit Cost	Amount
Item1	7	250	1750
Item2	23	120	2760
Item3	5	380	1900
Total:			6410

And this issue generates the following transactions.

Later, you receive and enter the vendor bill for the initial quantities of the items with the following information.

Table 5. Vendor Bill
Item	Quantity	Unit Cost	Amount
Item1	10	450	4500
Item2	23	200	4600
Item3	15	180	2700
Total:			11800

On release of this bill, the following transactions are generated.

Table 6. GL Transactions Generated for the Bill
Account	Debit Amount	Credit Amount
PO Accrual	11800	0
Vendor AP	0	11800

Also, on release of this bill, an inventory adjustment is generated with the following lines.

On release of the adjustment, the following transactions are generated.