Purchase Order Variance Procedures

Following are the recommended procedures for correcting a variance. LMS recommends that the Variance Report procedures are run on a weekly or daily basis.  However, if you do not want to perform these on a weekly basis, LMS highly recommends that they are performed at least once a month with your Accounts Payable End of Month Procedures.  Included in the Purchase Order manual is complete operation instructions of the Variance Report.

• Enter all Accounts Payable invoices. AP Invoice Entry or Manual Check Entry. AP 1-1 or 1-6.

• Enter all Purchase Order Receipts through P.O. Receipts. PO 1-4

• Run the Variance Report for all General Ledger accounts and all invoice dates. PO 4-4

Distribute to the proper people the items on the Variance Report that need a cost adjustment.  The average and last cost should be corrected in Item File Maintenance, P.O. 3-3.  The P.O. Stocking Report, P.O. 4-10, can be run for the specific purchase order and receipt date. The P.O. Stocking Report will print what the average and last cost was prior to the entry of the receipt.  It will also print the newly calculated average cost and new last cost from the results of the         receipt.  This can aid you in calculating what the average cost should be.  If you are not sure what the average cost should be it should be changed to what the correct last cost is.

• Run the Purchase Order Pending Purge.  P.O.  3-9. This will delete all purchase order pending records that have been received and invoiced.  Thus this removes the items from the Variance Report. Be sure the Variance Report has been printed prior to running the Pending Purge. 

• The next step is to determine whether any of the items, that were reflected on the Variance Report with a difference between the received and invoiced cost, have been sold to customers, after the entry of the receipt and prior to fixing the   Item File cost.

• Run the Sales History by Item report, BI 4-2-21, for the date range from the date the item was received with the wrong cost to the date the Item File was corrected.  This will verify that there have been sales of the item with the wrong cost.

• There are three possible ways to correct the cost.

• Void or issue a credit memo for the original invoices and than re enter the invoices using the correct cost.  This is the preferred method as it will automatically correct all of the files that stored the wrong cost.  You also have a source document of the correction. Invoice, C/M Entry, Service and Voids - BI -1-1, 1-2, 1-4, SD 1-4,5.

• After the A/R End of Month Posting of Sales Analysis to the General Ledger is completed, do a journal entry to the proper G/L accounts for the discrepancy in the cost.  The G/L accounts are on the Variance Report.  This method corrects the General Ledger but does not correct any of the other files for correct history reporting. Journal Entry  - G/L 1-1.

• Manually fix the following files in file maintenance programs. 

• Sales Analysis Files, BI 3-20.  Note, if A/R Eom Processing has been completed, this file will no longer include prior month records.

• Sales History Files (SHHist), BI - 3-17. ARECD File  BI System Manager menu

• Sales History By Item (Sahist), BI - 3-15.  Note, this file will only be incorrect if the A/R Eom Processing has occurred. Item and Item Warehouse File.  Note, this can only fixed through a utility in Application Manager. Do a journal entry for the difference if wrong posting occurred.  This method is the least desirable because of the chance for input error, and time consumption.  You will probably need assistance from LMS Support.