Return to Supplier COGS Affected?

dj12djdjs · October 19, 2022, 7:50pm

Hello everyone,
I wanted to get your thoughts on a behaviour I noticed in ERPNext when handling return to supplier entries. Here is the scenario:

We receive a shipment from supplier, there are many costs associated with this such as local shipping, customs, and freight charges. So, we use Landed Cost voucher to add the costs associated to the item’s valuation.
A few weeks later we notice some defects in some of the products. We reach out to our supplier, and they issue a credit note. However, supplier doesn’t care about our extra cost on the product and only issue a credit for the amount they invoiced. Therefor, the difference between the amount credited and the item valuation (I believe) becomes an expense to the company.
Purchase Invoice (Debit Note) against the supplier for the credit not supplier issued. (Update Stock is checked)

Expected Behaviour:

The amount credited from supplier is transferred from Stock account to supplier accounts payable account.

The difference between the amount credited from supplier and item valuation would be booked as some expense for the company. Possibly “Expenses Included in Valuation”

Observed Behaviour:

The difference between valuation rate and suppliers credit note is booked against “Cost of Goods Sold” I don’t know why; I suspect this is a bug. Why would it book against such an account when the goods haven’t been sold?

I’ve found a similar behaviour in the past doing a different flow:

github.com/frappe/erpnext

During submit of purchase receipt make_item_gl_entries assumes negative stock is sold.

opened 04:46AM - 06 Jan 22 UTC

dj12djdjs

bug to-validate stock

### Information about bug **Overview** While creating GL entries for Purchase …Receipt, it is possible for a "divisional loss adjustment" to be made. If the Purchase Receipt Item is being posted into a Warehouse with negative stock, _assuming the negative stock has been sold_ the difference is posted to COGS. **Steps to Reproduce** 1. Stock Valuation Method: Moving Average 2. Allow Negative Stock 3. Receive 1pc into Warehouse A at $10.00 4. Material Transfer 2pc from Warehouse A to Warehouse B (This will leave Warehouse A with -1, and Warehouse B with 2) 5. Receive 2pc into Warehouse B at $20.00 You will see in General Ledger the $10.00 difference will be posted to COGS even though these goods haven't been sold. **Source of Posting** https://github.com/frappe/erpnext/blob/498d933e9ce7c18d6c595d2e0f575645dc020d81/erpnext/stock/doctype/purchase_receipt/purchase_receipt.py#L357-L382 **Other Info** I know it doesn't make sense to transfer stock that will make warehouse negative, this is only to replicate the bug. I found it because most of the time our staff will post to Receiving warehouse when shipment is received. Then warehouse workers will create material transfers into the corresponding location as they stock the received goods. The problem occurs when office staff notices they made a mistake in purchase receipt, they cancel it, make the amendments. If the user doesn't check "Edit Posting Date and Time" before the form is saved the stock will be posted into Receiving Warehouse after the other material transfers resulting in negative stock values. Therefor posting the difference into COGS. ### Module accounts ### Version ERPNext: v13.17.0 (HEAD) Frappe Framework: v13.17.1 (HEAD) ### Installation method FrappeCloud ### Relevant log output / Stack trace / Full Error Message. _No response_

Does anyone have any experience why the valuation difference books against COGS?

peterg · October 20, 2022, 4:47pm

Hmm…this is tricky. I’m definitely not an accountant, so I’m not very confident about how this is supposed to work.

I don’t think Expenses Included in Valuation is the right account. That’s used, if I’m not mistaken, to reconcile an increase in stock valuation (due to things like landed cost vouchers) against supplier invoices. Here, you’d want to be treating it as a genuine expense.

dj12djdjs · October 20, 2022, 5:11pm

I’ve done some further digging.

Interestingly this is the expected outcome based on this test case for purchase invoice:

github.com

frappe/erpnext/blob/2a50a0ce69b03cea05d3479a715b20326fc60265/erpnext/accounts/doctype/purchase_invoice/test_purchase_invoice.py#L640-L645


      
          		# assert loss booked in COGS
          		self.assertGLEs(
          			return_pi,
          			[{"credit": 0, "debit": 200}],
          			gle_filters={"account": "Cost of Goods Sold - TCP1"},
          		)

What is strange is ERPNext uses the “Expenses Included in Valuation” when the exact same is done via Purchase Receipt. See example:

Purchase Receipt:

Purchase Invoice:

So why is Purchase Invoice with “Update Stock” checked making a different transaction than Purchase Receipt is?

Sherif_Ramzy · November 16, 2024, 8:36pm

Hi, did u find pls an answer to this strange behavior from ERPNext regarding COGS?