Does your company buy or sell things that are not inventory items? If so, do you find that using G/L type lines in Microsoft Dynamics NAV (or potentially Resources on sales) leaves you wishing that you had some of the functionality that inventory items provide? There may be a better way!
Limitations Using G/L Accounts
In Microsoft Dynamics NAV you can enter G/L lines on purchases and sales. This allows plenty of flexibility, but is completely dependent upon the user for providing proper pricing. The accounting results are also dependent upon the user selecting the appropriate G/L Account(s) for the revenue or expense.
Limitations Using Resources
Making use of Resources on the sales side can add more controlled structure. The Resources can be configured with posting groups that will control the ultimate revenue accounts in the G/L. Resource Pricing also provides the ability to define default prices on each Resource. However, these prices are by Work Type and Currency. They do not allow the same level of price list configuration that is provided for inventory items.
Dynamics NAV does not provide the ability to purchase Resources. So, on the Purchase side, there is no alternative to G/L lines for non-inventory purchases.
There is Another Option
Starting with version 2013 R2, Microsoft Dynamics NAV introduced an Item Type of Service. This setting was only visible in the Small Business Role Center until the release of NAV 2017, but the functionality has always been there (note: an item type of Service is not the same thing as a Service Item used in the Service Module of Dynamics NAV.) All of the details below relate to the item, and not the Service Module based Service Item.
What can you do with an item type Service?
- You can select it on the line of a sales or purchase transaction, just like any other inventory item.
- The sales and purchase price lists work the same way as any other inventory item. So, you can define price lists on the sales side for All Customers, Customer Price Groups, or Individual Customers. On the purchase side, you can define vendor specific prices.
- Since transactions posted using these items create Item Ledger Entries, many of the standard item-based reports can include them. For example, Item Sales Statistics reports would include quantities and revenues (note: there would be no cost of sales).
Where not to use “Service” items:
- Service type items cannot be used in direct inventory transactions (e.g. item journals, warehousing). This makes sense since they are, by definition, not inventoried.
- You cannot use Service type items in a bill of material. Again, this makes sense since they carry no cost and do not need to be relieved from inventory.
If you are currently using Resources for non-inventory sales and you do not require any pricing logic beyond what is available for Resources, then you likely would not see any advantage in shifting to a Service type item. However, the price list structure related to Items could make this shift attractive.
As an example, setting up a Service type item (see image below – taken from NAV 2017) for hourly charges for doing bicycle tune-ups will allow for a Customer Price Group based price list to be defined for that item. When the item is selected on a sales document, the proper price will default, not requiring the user to manually type it in (Figure 1).
Item Card (NAV 2017) (Note that in older versions, this field will only be visible if you are in the Small Business Role Center).
Sales Price List (Defined for the above item).
Based on the above, with a sales order line where the customer is part of the WHOLESALE price group, the unit price will default to the $75/hr when the item number and quantity are provided (Figure 2).
Once the sale (Figure 2) is posted, the resulting Item Ledger Entry (Figure 3) will contain the revenue amount and the quantity sold. The costs, however, will be zero. On the sales side, the inventory subledger captures the revenue and the quantity sold. Since the item is defined as a service, and it is not inventoried, it does not carry a cost, so there is no cost of sales posted with the sale.
At the G/L level, this sale will have created a revenue entry; but will not have posted any cost of sales, since the item carries no cost (just like selling a Resource).
There may be times when you regularly purchase something, but do not want to inventory it (e.g. work gloves). If you use a G/L type line on the purchase transaction you will be able to record the expense, but won’t really have a history of how many units you have been purchasing.
Setting up a Service type item for the gloves (Figure 4) will allow you to use this item on a purchase order (or invoice directly).
Similar to the sales example above, you could establish vendor specific price list entries for the item. And, as an additional benefit you will be able to keep track of quantities purchased over time.
Once the purchase (Figure 5) is posted, the resulting Item Ledger Entry will contain the quantity purchased and will also show the cost of the purchase in the Non-Inventoriable cost. Since this is defined as a service there is actually no cost that will be added to an inventory asset value, but the ledger entry does contain information so that it is possible to get a historical view of the purchase costs over time (Figure 6).
At the G/L level, this purchase will have posted a purchase expense; no inventory asset entry is posted, since the item carries no cost. So, effectively the purchase of a Service type item provides for the immediate expensing of the purchase.
How to Set it Up
If you are using NAV 2017, the Type field will be available on the Item Card. If you are using an older version, you will have to launch the Small Business Role Center in order to access this field (unless the regular item card has been customized to display this field). Either way, the first step is to select Service as the type for the item. Note: once you have transacted on an item you cannot change its type (similar to costing method).
You will want to provide a good description and a unit of measure for the item. Beyond that, the Gen. Prod. Posting Group may be all that is required (Figure 7).
Since no inventory asset entries will ever be posted, an Inventory Posting Group is not needed (in fact it is greyed out and cannot be selected).
The relevant accounting entries when transacting a Service type item will be either the revenue or the purchase expense, depending on whether the transaction is a sale or purchase.
On the sales side, the posting setup would be the same as for a Resource you intend to sell. The sales accounts will be used based on the combination of the Gen. Bus. Posting Group and the Gen. Prod. Posting Group (Figure 8).
On the purchase side, the purchase accounts will be used based on the combination of the Gen. Bus. Posting Group and the Gen. Prod. Posting Group (Figure 9).
If you are going to use this approach for purchasing, you may require a number of new Gen. Prod. Posting Groups so that you can point purchases to a variety of expense accounts in the G/L.
Other accounts in the posting setup will not be used by transactions on Service type items.
The Service type item can have significant benefits for sales and purchase processing. These benefits can include:
- Enhanced price list functionality for non-inventory sales and purchases
- Fewer errors due to more structured approach to transaction entry
- Enhanced reporting information
- Enhanced historical information
If you are using Dynamics NAV 2013 R2 or newer, consider how Service type items could enhance your ERP experience!