Inventory Posting

Why does THIS happen in Business Central? Is this a design flaw?

It is not. It's done by design.

In common accounting systems, a purchase of stock results in two transactions:

Cr. A/P

Dr. Inventory

(Let's assume VAT is not applicable for the sake of this example)

You see two more accounts used when you purchase inventory in Business Central the Purchase and the Direct Cost Applied.

In reality, these two accounts balance A/P and Inventory, as shown in the picture below.

Please note: this posting only applies to material transitions. I.E. purchase of items of type inventory. When purchasing non-inventory items, there are only two transactions:

Cr. A/P

Dr. Purchase (Expense account in the Income Statement)

The reason why these two additional accounts are moved is that #businesscentral is not simply accounting software. But a complete enterprise application suite that includes inventory management features.

The additional two accounts allow the application of overheads that increases the inventory value/ item cost through the application of costs from 3rd parties that are not reflected in the A/P.

You can set up an indirect cost % in the item card. Such costs are accruals for actual costs of handling or repacking for example.

Business Central allows companies to set up a default cost % that is applied to the item by default on the receipt of the goods.

This cost will increase the inventory value and it is balanced by the account overheads applied which is normally an accrual expense account that is reversed by an actual cost later in the month. For example, a cost to repack the items.

If you don't need to apply indirect costs to your items, you can set up Purchase and Direct Cost Applied to wash and use the same nominal code for both in the General Posting Setup.

If so, the purchase of goods will still create the four entries but the net balance will be moved to the A/P and the Inventory account.