How to Correct (Reverse) the Zero-Cost Misc. Issue?

Reference:  When the Item Average Cost Down to Zero…

If you are unfortunately create a misc. issue with a big unit cost and make the item cost to zero and some cost variance balance, how to correct it? Please see below article, it may help you on this. (If you meet any more other situation, feel free to discuss with me!)  Please supposed that

Original Status Before Making Mistake

Item Cost: 5
Item Quantity: 10

Mistake

Now you are required to make a misc. issue for quantity 1, unit cost is 5. But you make a mistake, you misc. issue for quantity 1 and unit cost 60, the accounting entry is
Dr. Account 60 (60*1)
Cr. Cost Variance 10 (60-50)
Cr. Inventory 50 (5*10)

Analysis

Now we found the mistake and want to correct it.

1. Firstly, check if there is any cost update transactions occurred during these days, e.g. sales order issue, etc.

2. If there’s no sales order issue, the accounting entry variance should be

  Wrong Accounting Entry Correct Accounting Entry Variance
Dr. Account  60
Cr. Cost Variance 10
Cr. Inventry  50
Dr. Account 5
Cr. Inventory 5
 
Account 60 5 -55
Cost Variance -10 0 10
Inventory -50 -5 45

3. If there is sales order issue, the accounting entry variance should be

  Wrong Accounting Entry Correct Accounting Entry Variance
Dr. Account  60
Cr. Cost Variance 10
Cr. Inventry  50Dr. COGS  0
Cr. Inventory 0
Dr. Account 5
Cr. Inventory 5Dr. COGS  5
Cr. Inventory 5
 
Account 60 5 -55
Cost Variance -10 0 10
Inventory -50 -10 40
COGS 0 5 5

Solution

If there’s no sales order issue,

  • Use Update Average Cost functionality to update average cost 45, meanwhile select the same account during misc. issue. (Dr. Inventory 45; Cr. Account 45). Note that “Don’t” use GL journal to do it, GL journal can’t update item cost.
  • Create a GL journal to debit Cost Variance 10 and credit Account 10.

If there’s any sales order issue,

  • Use Update Average Cost functionality to update average cost 40, meanwhile select the same account during misc. issue. (Dr. Inventory 40; Cr. Account 40). Note that “Don’t” use GL journal to do it, GL journal can’t update item cost.
  • Create GL journal to Dr. Cost Variance 10, Dr. COGS 5 and Cr. Account 15.

Below is the Update Average Cost window in Oracle, you can try to find it from Cost > Item Cost > Average Cost Update like  below

Above solution is just used for the zero-cost misc. issue. If you just make a mistake for a little amount (it means “Cost Variance” account is not shown in the accounting entry), then that’s not complicate so much. You just need to go to update average cost to correct the variance easily.

By the way, the accounting entry can be gotten from Inventory > Material Transactions. Just go there, find out your transactions by transaction type, date, item, etc., then go to menu Tools > View accounting.

So long! And see you!