Microsoft Dynamics GP Inventory cost variance on PO’s (with video)

What happens if you receive a shipment in Microsoft Dynamics GP Purchase Order Processing and the invoice comes in for a different dollar amount? 

What happens if you receive a shipment in Microsoft Dynamics GP Purchase Order Processing and the invoice comes in for a different dollar amount? 

Originally Posted 5/2/12

Q:  What happens if you receive a shipment in Microsoft Dynamics GP Purchase Order Processing and the invoice comes in for a different dollar amount?
A:   That depends on how you set up the item in inventory.

There is a setup feature in the item class/item purchasing options that enables you to choose whether you want this adjustment amount to recalculate your inventory value or have it go directly to your designated variance account. The logical choice would be to set it up to update inventory; it is inventory after all. But there are quite a few factors you should consider first:

  1. How quickly do you turnover your inventory? If you are purchasing this item to fill a specific order and the customer order is created prior to receiving the invoice and creating the variance, then you would probably want the amount to go directly to a variance account. If it revalued inventory, you would be left with a dollar balance in inventory as the value but with a quantity of zero. If it is an item you keep in stock, then you may want the inventory value to update accordingly.
  2. What is your inventory valuation for this item? If you are using Average Perpetual, then you should probably have the difference go to the variance account instead of inventory. With Average Perpetual, you may already have a difficult job performing reconciliation tasks. Adding a variance would only make a tough job tougher.
  3. How much is the net variance and how often does this scenario occur? If this only happens occasionally, then I would suggest using the Purchasing variance account. Also if the net value is low, I would again suggest using the Purchasing variance account. If it happens frequently or the dollar value is large, then you should probably send the variance to inventory. You can set a tolerance percentage, so any variance over the tolerance percentage would go to inventory, and anything below the percentage would go to the Purchasing variance. Also, if this occurs a lot, I would review your operating procedures. Perhaps some of this could be reduced by more closely entering shipments (adjusting the unit cost there) or by updating PO’s after order confirmations are received.

If you are unsure, start with it unmarked and let the variance go to the designated Purchasing variance account. See what happens; you can always change it at any point in time.

Due the nature of inventory requiring regular monitoring, the decision on marking or unmarking this option should be well thought out. Managing inventory can be a complex task, but Microsoft Dynamics GP gives you the controls to make it easier!
Setup Notes:

  • The Purchasing variance account is on the Account window for each individual item.
  •  Revalue Inventory for Cost Variance is in the Item Class Setup window AND can be accessed for each item from the “Item Purchasing Options Maintenance” window under Inventory Cards.

Author: Belinda Allen

Belinda Allen (Microsoft MVP) is both a Microsoft Certified Professional for Dynamics GP (MCP) and a Microsoft Certified Trainer (MCT). She is also the co-founder of Smith & Allen Consulting, Inc. (, a business management software consulting firm for over 24 years. Belinda began implementing ERP systems so long ago that Windows was not an operating system, but an application. Larger businesses used old Main Frames with monitors that were Green and Black and smaller business did accounting by hand. Having seen the evolution that has taken place over the years from pieces of paper to analytics, Belinda still gets excited every time she helps a business improve. Belinda is also well known for her Blog Her blog is about sharing really useful information about the product quickly and succinctly. She has earned the nickname GP CSI because she excels at reviewing GP problems and figuring what went wrong and why. With followers all over the Globe she is able to share knowledge and achieve her mission: “To Improve the Lives and Business Success of my Followers.” In her time off, Belinda enjoys sailing, woodturning, crochet/knitting, sewing/quilting, reading and playing the ukulele (Belinda often participates in Ukulele Jams in NYC.)

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