Purchase price variance allocation - example 1

This topic gives examples of the documents that you create and the transactions that the system generates for purchase price variance allocation. The examples assume that:

• You select Inventory account as the allocation mode for purchase price variance (PPV) amounts.
• You assign the Average cost valuation method to the purchased items.
• All quantities of items in stock remain unchanged between the dates of receipt and invoice.

Step 1 - Create a purchase receipt

In the Purchase receipts (PO302000) window, you create a purchase receipt for the following items.

Purchase receipt

Item	Quantity	Unit cost	Amount
Item 1	10	250	2500
Item 2	23	120	2760
Item 3	15	380	5700
Total:	10960

When you release the purchase receipt, the system creates the following transactions.

General ledger transactions generated for the inventory receipt

Account	Debit amount	Credit amount
Inventory (Item 1)	2500	0
Inventory (Item 2)	2760	0
Inventory (Item 3)	5700	0
Purchase accrual:	0	10960

Step 2 - Create an invoice

In the Purchase invoices (AP301000) window, select Actions - Create purchase invoice.

When you receive and enter the purchase invoice for the initial quantities of the items, you enter the following information.

Purchase invoice

Item	Quantity	Unit cost	Amount
Item 1	10	450	4500
Item 2	23	120	2760
Item 3	15	180	2700
Total:	9960

When you release the purchase invoice, the system creates the following transactions.

General ledger transactions generated for the purchase invoice

Account	Debit amount	Credit amount
Purchase accrual	9960	0
Supplier ledger	0	9960

When you release this invoice, the system also creates an inventory adjustment with the following lines.

Inventory adjustment

Item	Extended cost
Item 1	2000
Item 3	-3000

General ledger transactions generated for the inventory adjustment

Account	Debit amount	Credit amount
Inventory (Item 1)	2000	0
Inventory (Item 2)	0	3000
Purchase accrual:	1000	0