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Price Difference in FI-MM with Accounting Entries

ramagovinda2689
Discoverer
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Hi Professionals,

This is Ram, I am new to SAP world can anyone please elaborate the Price Difference Concept in FI-MM with Accounting Entries @ Full Stock, Partial stock, No Stock with examples if Possible. It will be helpful for me.

Thanks Regards,

Ram.

former_member27
Community Manager
Community Manager

Hi Ram,

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Regards,

Dedi

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Answers (1)

Answers (1)

sanilbhandari
Product and Topic Expert
Product and Topic Expert
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Hi ramagovinda2689

Assume you have ML with actual costing active in your system and now you have a RM valuated at $10/piece and valuation method is Standard Price - S.

Now you create a PO for 10 qty and you negotiate with your vendor to sell you the same at $11/piece for 10 qty. The accounting entries at GRN would be as under:

Price Difference - $10 Dr

Stock RM - $100 Dr

To GR/IR Clearing A/c $110 Cr

In this case, since you have material valued at standard price of $10/piece and the PO price is $ 11/piece, the difference of $1/piece between PO and material price is posted to Price Difference. if you have ML with actual costing, than you can load the price difference (also called as capitalization of inventory as current asset), if the stock exists or is charged to P&L is the same has been consumed. The actual costing run happens in the month end.

Case -1 the entire 10 qty ordered from vendor remains in stock

Stock RM $ 10 Dr

To Change in Stock $ 10 Cr

Case -2 If the 6 qty were consumed, than ideally you should charge your price difference as below:

$ 6 should be charged to P&L for consumption of stock (Qty 6) and remaining $ 4 should be charged to Inventory at month end

The below accounting entry happen:

ML Differences Dr $ 6

To Change in Stock/Price Difference Cr $ 6

Stock RM $ 4 Dr

To change in Stock $ 4 Cr

So at the end of period, the inventory is valuated at actual cost and the P&L is also impacted at actual cost. This is a very simple scenario I have tried to explain.

Now another scenario is that you have a system without actual costing and you have material procurred externally. Generally most customers maintain such material at moving average price (MAP). Assume you have ordered for 10 qty in PO and the material is valuated at $ 10/piece. The PO has been issued at price of $ 11/piece. Now assume you already have a stock of 5 qty with stock value as $ 50 (5X10). When you go the GRN for this, the below entries should happen

Stock RM $ 110 Dr

GR/IR Clearing $ 110 Cr

Now assume the vendor sent an invoice for $ 120 for 10 Qty and you have set a tolerance in the system to allow you to post such an invoice. Also assuming the stock has been consumed (All 10 qty consumed) In such a case, the accounting entries would be as under:

GR/IR Clearing $110 Dr

Price Difference $ 10 Dr

To Vendor A/c Cr $ 120

if the stock was partially consumed, the amount of $ 10 would have been loaded proportionately to price difference and stock account.

Hope this clarifies the rationale for the system behaviour and the corresponding postings

Thanks & Regards

Sanil Bhandari