The areas in Accounting where this can take place:
The area in Parts where this will take place:
Understanding the Process
- Parts Inventory: Tracks the total value of parts physically in stock.
- Used Core Value: Holds the value of returned cores until they are sent back to the vendor.
- Accounting Parts Inventory Account: Reflects financial adjustments when transactions occur.
For clarity, we will use simple dollar amounts in this example.
Step 1: Initial Inventory Balances
Before any transactions occur, inventory balances are as follows:
|
Category |
Amount |
|
Accounting Parts Inventory Account |
$100,000 |
|
Parts Dept Inventory |
$100,000 |
|
Used Core Value (Parts Dept) |
$0 |
|
Total Parts Dept Inventory Value |
$100,000 |
Step 2: Ordering and Receiving a Part
- Parts Dept places an order for a part with a cost of $1,000 and a Core Charge of $250.
- Upon receipt, the system updates the Parts Inventory values.
- At this point, nothing happens in Accounting.
|
Category |
Amount |
|
Accounting Parts Inventory Account |
$100,000 |
|
Parts Dept Inventory |
$101,250 |
|
Used Core Value (Parts Dept) |
$0 |
|
Total Parts Dept Inventory Value |
$101,250 |
Step 3: Invoice Posting by Accounting
- Accounting records the vendor invoice to match the parts received.
- Either by a Manual GL entry or a Purchase Order, created at the time the Parts Order was placed, the cost is posted directly to the Parts Inventory Account.
|
Category |
Amount |
|
Accounting Parts Inventory Account |
$101,250 |
|
Parts Dept Inventory |
$101,250 |
|
Used Core Value (Parts Dept) |
$0 |
|
Total Parts Dept Inventory Value |
$101,250 |
Step 4: Selling the Part and Receiving a Used Core
- Parts Dept sells the part and takes in the customer’s old part as a core return.
- The $1,000 part cost is removed from the Parts Inventory.
- The $250 Core Charge is moved to the Used Core Value category.
- The Parts Inventory account number in Accounting is reduced by the $1,000 part cost.
|
Category |
Amount |
|
Accounting Parts Inventory Account |
$100,250 |
|
Parts Dept Inventory |
$100,000 |
|
Used Core Value (Parts Dept) |
$250 |
|
Total Parts Dept Inventory Value |
$100,250 |
Step 5: Returning the Used Core
- The Parts Dept processes a core return to the vendor.
- The $250 Core Charge is removed from the Used Core Value.
|
Category |
Amount |
|
Accounting Parts Inventory Account |
$100,250 |
|
Parts Dept Inventory |
$100,000 |
|
Used Core Value (Parts Dept) |
$0 |
|
Total Parts Dept Inventory Value |
$100,000 |
Step 6: Accounting Receives the Core Credit
- Accounting processes the vendor credit for the core return.
- The Accounting Parts Inventory Account returns to its original balance.
|
Category |
Amount |
|
Accounting Parts Inventory Account |
$100,000 |
|
Parts Dept Inventory |
$100,000 |
|
Used Core Value (Parts Dept) |
$0 |
|
Total Parts Dept Inventory Value |
$100,000 |
Key Takeaways
- Parts Inventory Updates in Real-Time: When a part is received, sold, or returned, the system automatically updates the balances.
- Core Value Moves Between Categories: When a used core is taken in, its value shifts from Parts Inventory to Used Core Value.
- Accounting’s Role:
-
- Manually posts invoices when vendor parts are received.
-
- Processes credits for core returns.
- System Integrity: Ensuring accurate postings prevents discrepancies between Parts and Accounting.