This document attempts to explain many possible sources of discrepancies between your parts inventory and General Ledger, and how to avoid these problems in the future. You should be balancing your parts inventory using the parts inventory summary by average cost and then cross-referencing those values with the inventory account balances in your parts accounts. Dealer should be using current on hand versus net on hand when balancing inventory.
Inventory Summary should be run at least on a monthly basis and is a snapshot of current inventory only; historical reports cannot be generated. Any vendors that you do regular business should be loaded as a parts price file to ensure that pricing is accurate and up to date. If there is just minor changes to a parts price master you can use the 'Change Parts Information' option Product Support/Parts/Utilities (in green screen this is option 7. Change parts data from the MENU PART02). Make sure that the 'Part Adds' (PartAdds) and 'Master Price File' )PARTPRC tables with the proper defaults under Configuration/Parts including sale account. There is also a COSTCODE field that can be set on a part which will than use the COSTCODE table for default order discount pricing.
The following explains many possible sources of discrepancies between your parts inventory and G/L, and how to avoid these problems in the future through the effective use of the IntelliDealer system.
1. Parts per Package(PPP/PMPPK)
Each part number(inventory item) has a parts per package associated with it. In most cases the PPP is 1, in other words, only one exists in the package. However, sometimes the parts screen is mistakenly set to a higher number which inflates the inventory value. If the PPP is lower than what it should be then it will deflate the inventory value. Basically, what happens is the cost value needs to correspond to the PPP. Since the cost is what is used to determine what the part gets receipted in at and therefore also adjusts the average cost, careful attention should be made to the average cost should the PPP be adjusted. Look for parts where the cost on the parts master is vastly different from the average cost value -- these parts are often throwing parts inventory out of balance and grossly under or overstating the parts value.
2. Inventory Adjustment Option
This green screen option can be helpful for adjusting quantity on hand values in the parts inventory, but be aware that any adjustments that are made through this option need to have a corresponding G/L entry manually done. VitalEdge recommends that this option be used on a minimal basis since it does not give a good paper trail. We also recommend that this option be protected with an operator code. Parts managers need to ensure that proper policies are in place for receipting of parts from vendors, from other dealer locations, and for returned parts from a customer. Each one of these scenarios requires an adjustment to inventory but also a corresponding adjustment to the G/L. To correct many types of orders you can use the IntelliDealer Parts Order Correction option.
NOTE: In IntelliDealer you can only adjust the quantities for GL parts under Product Support/Parts/Utilities/Increase Miscellaneous Part On Hand. All other updates must be done through the inventory count system or through parts invoicing using special customers and part numbers Database 'PFW Help', View 'By Author', Document 'Inventory Adjustments via Parts Invoicing'.
3. Wrong vendor or Sale Account
If a part has the wrong vendor or sale account, then the parts system might show a figure too high or too low, and the corresponding parts reports (inventory summary, parts management, etc.) will be inaccurate because of this. Most dealers have separate G/L sale accounts for each part vendor, so as a management tool, the sales for any particular parts vendor may be monitored from month to month on the financial statements as well as on the parts reports. If you are having trouble with reconciling inventory to G/L, you may consider splitting out vendors into separate G/L accounts so that you can better determine which vendor lines are causing the discrepancy. Also check your parts to make sure that vendor GL parts are correct and that you're not omitting real parts from your inventory summary report.
4. Default Cost of Sales Percentage
How are parts costed (relieved from inventory when sold) in the IntelliDealer system? An averaging costing system is used as opposed to Last In First Out (LIFO) or First in First Out (FIFO). The basic information can be found in Average Cost Calculations.
a) When a part is sold and the part number has an average cost of "5 cents or more" , then the inventory G/L account is credited at average cost.
b) When a part is sold and the part number has an average cost of "0 cents" the system will use net cost (or landed cost if cost codes are used, see the note above).
5. Discounts
If you parts vendors give you dealer discounts, both the parts manager and the accounting personnel need to agree on which costs get loaded on the parts. In other words if the parts vendor allows a 5% discount, then on that vendors orders in the parts order maintenance screen, a 5% discount should be used. There are a couple of ways to handle this automatically so that proper receipted prices are being used. You can use the COSTCODE table that can be setup by vendor that will default the proper costing based on the various order types, or on the parts order maintenance screen using the Comments line you can enter in 05.00% in the first 6 positions of the comment line and this will tell the system to receipt in the parts at 5% of the net cost loaded on the parts being ordered. If it is not a % discount, you can also manually override the cost on the parts order maintenance screen to reflect the cost to receipt the parts in at.
6. Breaking of Bulk Units
Parts that are brought in at bulk and then sold at smaller increments are also potential problems. Link chains are a good example of this. If the dealer buys 500 links ( 1 roll ) of chain for $500 and normally a roll costs $1000 ( Part Number CHAIN01 has a net cost of $1000, and a PPP of 500). If the chain is receipted in at $1000 by mistake, then the average cost will be inflated and when the chain is sold the margin will not be accurate. You should run a list of parts with a PPK>1 every month to check for any errors that may have occurred.
7. Selling Miscellaneous parts
Many dealers use a miscellaneous part number for the purpose of selling miscellaneous items such as nuts and washers. Try to minimize this as it can only cause discrepancies, and depending on how many of these parts you sell, the large the discrepancy you will have.
8. Parts Transfers
In parts invoicing by default the accounting is done automatically when the sending store invoices the parts. If the receiving store cancels the order or receives in the wrong amount, the accounting has already been done and it can throw the inventory out of balance.. In R6V06, dealer has option to hit an accrual account for parts that are being transferred. This accrual account will not get credited until the part is receipted at the receiving store. For more information on setting this up see 'Alternate Parts Transfer Accounting Option (R6V06 and Later)'
9. Parts Price Updates
This is one of the most important functions that needs to be performed to ensure that the pricing you are using for receipting and selling is accurate. If it is not then the average cost will potentially be inaccurate and your margins will be effected accordingly.
10. Accounts Payable voucher entry( Paying for the parts)
When accounts payable enters payments to the vendors they need to ensure that what is being charged is the exact amount of what has been receipted on the parts inventory side. There are a number of tools in the system to ensure that this occurs, the best one is the Parts Accrual System. If you enter the PO# in the Key A/P voucher screen that corresponds to the PO# on the parts side for that vendor, then the A/P clerk can display the total cost that has been receipted to date for this order, as well as the detail by part number can be displayed if the total cost is not accurate with the bill from the vendor. There is also an option in table CMBR1 - print P/O receiver report, that will print a receiver report each time the parts order person receipts in a parts order. This document should then be attached to the packing slip from the vendor that the parts person used to receipt from and the two documents should be forwarded to the Accounts Payable department for review once they receive the bill from the vendor.
11. Parts returns
If you use the IntelliDealer system for parts returns, make sure you ensure that parts that are to be returned are removed from inventory at the proper price that you are getting credit for, if there is a difference the accounting department will need to ensure the difference is put to the proper accounts to ensure that we remove the proper amount out of the parts inventory accounts.
12. Other reports to help in the balancing
a) PAR127A - Parts cost of sale report
There is a report (PAR127A) that can be activated that can be run during each parts billing run that will show margins for parts on the billing run. It can be setup to only show parts below a certain margin or above a certain margin so that you can concentrate on the exceptions. To activate this report, use the table DIVTAB and set the option PARTS COSTING ... to J. To activate this report on a margin range, use the table CMBR1 and setup the line that says PAR127(A) MARGIN RANGE.
b) PAR029 - Parts Management Report
This report comes out when the parts month end is run each month. This report shows inventory values and many other fields that are very helpful when you are ensuring that the Parts inventory is in balance with the G/L. You can group various vendors on this report using the PARTGRP table.
c) PAR054 - Inventory Summary
This report shows net cost/average cost and list and should be run on at least a monthly basis to ensure that discrepancies are corrected as quickly as possible.
d) PAR014 - Parts daily error control report
This report should be looked at each day, and especially concentrate on the parts that were added to ensure that they were added with the proper cost/list/vendor/sale account/bin.