Accounting treatment of inventory

[Iain Fogg <ia...@westnet.com.au>]

Si (and others),

I'm wondering if you can advise on the following...

I raise a purchase order for an item. Because of the nature of my 
industry, the normal way to express the cost is "Recommended Retail 
Price less a negotiated trade discount". For example, if the product 
costs $100 and my discount with that supplier is 40%, it'll cost me $60.

I handle this by setting up a purchase agreement with the supplier using 
a promotion. The supplier_product record for the product will have a 
last_price of $100 (the RRP), and, of course, the promotion is for 40%.

I place the order, receive it into inventory and then check the GL.

Inventory GL Account: $100
Accounts Payable: $60
Purchase Order Adjustments: $40

In this situation, shouldn't the Inventory account be credited with the 
adjusted value, $60, 'cause that's what I actually paid for it? Have I 
screwed something up on my config?

It would be extremely difficult for me to change the supplier_product 
pricing data to a nett figure because (a) the RRP pricing changes on 
occasion and I get the pricing info from an industry database, (b) my 
trade discount changes over time as I negotiate better rates with my 
suppliers, and (c) I deal with thousands of products (books).

At the end of the day, I would expect the Inventory report to tell me 
the cost of inventory, not the retail value of it.

Advice appreciated, Iain


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