Edward Gutkowski, Chief Architect - RapidReconciler
In my experience as a distribution consultant for JD Edwards, I have always recommended the following process when changing the GL class code on an item:
Step 1: - If the item has any quantity on hand, adjust it out with an ‘IA’ transaction.
Step 2: - Change the codes on the item branches, locations and open orders.
Step 3: - Adjust the inventory back in.
So why the 3 steps? Although it seems like a lot of effort just to change a code, let’s have a look at what happens without the inventory adjustments. Consider a brand-new item (A123) that was initially classified as raw materials (RM01). We do our first transaction, a PO receipt, which adds quantity on hand and debits the raw material account, credits received not vouchered:
So far so good. If we were to run an inventory report, the total on hand would be $100. Similarly, a trial balance report for raw materials would yield the same result. All is in balance. Life is good, until we realize the item is actually a purchased finished good and we must change the GL class. We are unaware of the recommended change process and we don’t adjust out the on hand, just go to the item branch and locations and change the code. How does the Item Ledger and General Ledger change when we do that?
The answer is: IT DOESN’T. But it should have. We need something to reclass the amount from raw materials to finished goods. You could do that with a journal entry, but there would be no trace of the change in the item ledger.
Using the recommended process produces the following results:
Notice the IA transactions accomplish 2 things. It results in a net zero item ledger summarization for the RM01 class code and it reclasses the amount from raw materials to finished goods. Both of these things are very important for reconciliations. As a note, all of the transactions should be done in a timely manner as you don’t want other activity happening while the change is in process.
Doing the proper process and not skipping the adjustments will save a lot of headaches at period end. Happy reconciling!