As Purchase Order and Non PO or Inventory Receipts and Vendor Ship Invoicing transactions are processed, the system writes a record for each item being received into inventory, or being vendor shipped to a customer to the Inventory Activity File (File 91). The Inventory Activity file is an inventory transaction history file that documents the changes to the quantity and or cost of an item when the item is processed by the system.
Each Inventory Activity record contains an AP Invoice Number field – this field can be used to store the register number (a unique internal identification number) of the AP invoice associated with the transaction.
The Inventory Activity records used in the Three Way Matching process include type PR (PO receipt), IR (non-PO inventory receipt) and VS (vendor shipment) transactions. These transactions are created with a 0 in the AP Invoice field to indicate that they are not yet associated with an AP invoice. The Inventory Activity records are automatically written during the receiving and vendor ship invoicing process without any operator intervention. The Inventory activity records contain the Purchase Order (PO) number from the receiving transaction, if the receipt was a PO receipt, or a Vendor Shipment transaction. The records will contain a temporary PO number if the receipt was an Inventory receipt processed without a purchase order. The Inventory Activity records also include other detailed information about the transaction and the status of the associated inventory item at the time the receipt. This information includes but is not limited to, the quantity of the item being received, the cost of the item in both the PO and your local currency, the exchange rate used for the transaction, and other information.
At the end of the receiving process the total value of the goods being received into inventory or vendor shipped to your customer is calculated and posted to the appropriate Inventory Control Account. The Inventory Control Account used for each item is based on the product line that the received items are assigned to. The total amount of the receipt is also booked as a credit to the Inventory Liability Account.
The Inventory Liability or “Unvouchered” is a liability account in the general ledger. This account is a system control account and the balance in the general ledger account should always match the total of “unmatched” receiving and vendor ship invoicing transactions in the inventory activity file.
An “Unvouchered Inventory” report is provided with the system and this report is used to list the open inventory activity records and support the balance in the system control account at any point in time. At any point in time the total value of all unvouchered type PR, IR, and VS inventory transaction records (AP Invoice# =0) in the Inventory Activity file should match the balance in the Inventory Liability Account in the General Ledger.
The balance in the Inventory Liability Account is the amount of received inventory and vendor shipments that you owe your vendors for, that you have not already entered an AP invoice for. This amount (inventory received and not yet paid for) is normally the largest accrual item for a distribution company when financial statements are generated at the end of an accounting period. The Three Way Matching feature and the associated reports should eliminate or at least minimize the need to manually calculate and post this type of accrual prior to generating financial statements.