Minimum Version Required: 22.01
Pre-Conditions
FIFO Adjustment Logic:
ScheduledTasks Recalculate Inventory FIFO Layers will auto run every day.
FIFO Adj = Sum(PurchaseTrans.OnHand*PurchaseTrans.LaidInCost) - Inventories.InventoryValue - Inventories.InventoryReceivedValue.
When this FIFO Adj is more than 0.01, the FIFO Adj Invoice will be created.
Steps
What are FIFO Adjustments?
Fifo Adjustments are a way for Encompass to ensure the accuracy of Cost of Goods within the system when changes to product costing occur.
How are they created?
These adjustments are created using a special customer called the FIFO adjustment customer. This customer never accrues AR, and its invoices always have a net 0 impact on inventory. The journal entry for these invoices adjusts the value of your Inventory Asset Account and Cost of Goods Sold (COGS) account to correct for updates in product cost. These invoices are created by a routine that runs nightly to update FIFO layers in Encompass.
Why are they created?
There are four separate situations where a FIFO adjustment is created:
A purchase is received at one price and confirmed at another. In the meantime, product from that purchase has been sold. This is the most common situation for FIFO adjustments. If a product was received at a cost of $25.00 and we sold 10 cases of that product before confirming the purchase with a cost of $30.00 (The vendor raised the price, freight costs changed, etc.) we will have a $50 adjustment to cost of goods sold because we sold those ten cases out at a cost that was $5 less than it should have been.
Product is sold with two different costs on the same day. This is another common cause of FIFO adjustments. Encompass will only sell product from one FIFO layer per day. This doesn’t always work in the real world. If we have a situation where we sell 20 cases of the same product in a day, but 10 of those cases came in on a purchase for $25 each and the other 10 cases came in on a purchase for $30 each, we will sell all 20 cases at the cost of the current FIFO layer ($25) and create the $50 adjustment to COGS and Inventory for the 10 cases that actually came in at $30 when the nightly FIFO routine runs.
A purchase was returned or transferred at a different cost than it was purchased for. This is very similar to the first situation, if we purchased 10 cases of a product at $25 and then sent it back to the vendor at a cost of $20.00, a $50 FIFO adjustment will be created to correct our Cost of Goods and Asset Account and make up for the difference in the cost.
A product type is changed to Track Inventory = False. If we decide to stop tracking inventory on a certain product type (this sometimes occurs with promotional products), we will adjust the entire value of those products out of Inventory and Cost of Goods Sold.