Integration between the General ledger and the Production control modules

• 15 minutes

As a Functional Manufacturing consultant, you should be aware of the relationship between the Production control module and other modules in Supply Chain Management. This topic explains the integration between the General ledger module and the Production control module.

The production order life cycle formally begins with the creation of the production order and ends with a finished, manufactured item that is ready for the customer. When a step in the life cycle is completed, the production order reflects this with a status change.

Each step in the life cycle is associated with the following activities:

• Monitoring and controlling the production
• Estimating and calculating costs
• Scheduling orders
• Starting and ending actual production

The production order contains information about what is to be produced, how much (quantity), and the planned finish date. The system assigns an order status to each step in the life cycle of the order. The status shows where the item is in the production process. When an order is first created, it is automatically assigned the status of Created.

To help you understand the interactions between the General ledger and Production control modules, this unit reviews the production statuses with an emphasis on how each step pertains to financial data or interacts with the general ledger.

Create and estimate

The first two steps of the production order life cycle are Create and Estimate.

• Create - When creating production orders, you can specify the settings that determine how production order transactions are posted to the ledger. These settings pertain to production orders that are created manually or automatically from a sales order or master planning schedule.
• Estimate - This step involves the calculation of the most likely material, labor, and route consumption for the production. You can create inventory transactions, which are issue transactions for raw materials with the status of On order and receipt transactions for the BOM with the status of Ordered. You can also create purchase orders and sub-productions for the production order, and reserve items and calculate the price of the finished goods based on parameter settings.

Schedule

The next step in the production order life cycle is Schedule. After the production order has been estimated, it is scheduled. Production orders can be scheduled based on operations scheduling, job scheduling, or both.

• Operations scheduling - This scheduling provides a rough, long-term plan. By using this method, you can assign start and end dates to production orders. If the production orders are attached to route operations, you can assign them to cost center groups.
• Job scheduling - This scheduling method provides a detailed plan. Each operation is broken down into individual jobs with specific dates, times, and assigned resources. If finite capacity is used, jobs are assigned to resources based on availability. You can view and change the schedule in the Gantt chart.

Release and start

The next steps of the production order life cycle are Release and Start.

• Release - In this step, the system releases the production order when the schedule is realistic and finalized. At this time, you can print production order documents such as the job card, the route card, and route job. At this stage, the status of the production order changes to indicate that the production can start.
• Start - When a production order is started, you can post costs against the order. You can automatically allocate estimated material and route costs to the order when it is started. This allocation is known as pre-flushing or auto consumption.

You can manually allocate material to the order by creating picking list journals and then allocate labor and other route costs to the order. If using operations scheduling, you can allocate these costs by creating a route card journal. If using job scheduling, you can allocate these costs by creating a job card journal.

Report as finished

The next step of the production order life cycle is Report as finished. When the production order is reported as finished, the quantity of finished goods completed is updated in the Inventory and Warehouse management module. If you use work-in-process (WIP) accounting, the system uses the standard cost from the On-hand page to create a ledger journal to reduce the WIP accounts and increase the inventory of the finished goods.

When the cost of a production order is calculated, the actual cost of the production is posted and the posting that occurs during reporting-as-finished is reversed. If the material and labor costs that are associated with production are not already allocated in a journal or by pre-flushing, they can be automatically allocated by back-flushing. This involves the post-deducting of inventory transaction processes.

When a quantity of the finished goods is reported as finished on a production order it is updated as on-hand in the inventory. Partial quantities of the originally planned order quantity can be reported as finished. It is also possible to report error quantities with an associated error reason when reporting quantities as finished. When the production order reaches the stage Reported as finished it indicates that no more quantity is going to be reported at the production order. The following characteristics are also associated with the Report as finished process:

• It is possible to set up consumption of raw material and time that are proportional to the reported quantity (back-flushing)

• Put-away work can be generated for items that are enabled for warehouse processes.

• The planned or standard cost value of the finished goods can be set up to be reported to ledger accounts.

• A quality order can be created for the reported quantity based on the setup of a quality association.

The quantity is reported to the output location. Warehouse work is then generated to move the quantity from the output location to its final destination defined by the location directive for the put-away work. A quality order can be created when a production order is reported as finished if a quality association has been set up.

You can set a production order to Report as finished through the standard production order update function, or through the route and job card journals, or through the journal Report as finished. You can also update the stage to Report as finished through the job card terminal and job card device pages when you report on the last job of the production order. Finally, you can enable the Report as finished option as a process for the handheld warehouse device solution.

Use the following steps to create, post, and print a by-product journal from a report as finished journal:

1. Navigate to Production control > Adjustments > Report as finished.

2. In the Name field, select the name Reporting from the drop-down menu.

3. In the Production field, select the production order.

4. Select New under Journal lines. Make sure the entries are correct.

5. Select Validate to validate the journal.

6. Select Post to post and print the journal.

End

The next step in the production order life cycle is End. Before you end production, the system calculates actual costs for the produced quantity and all estimated costs of material, labor, and overhead are reversed and replaced with actual costs.

If you select the End job check box when processing Reported as finished for the job, the production order status changes to Ended. This status prevents any additional costs from being inadvertently posted to a completed production order.

When a production is reported as finished, it means that finished items have reached inventory and become available to ship. The value of these items is posted to the account that is specified in the Report as finished field. Debit the amount on this auxiliary account and calculate the amount by multiplying the quantity with the standard cost price. This account functions as an auxiliary account because the amount is only posted on this account until costing takes place. To balance the books, credit the same amount to the account specified in the Report as finished offset account field.

Default ledger settings

You can define a ledger setting as your default value on the Production control parameters page by selecting Production control > Setup > Production control parameters > General tab, and then selecting the setting in the Ledger posting field. The default value will be automatically assigned to all subsequent production orders that were created from a sales order line, master planning, or sub production orders.

When you create a production order manually on the Create production order page, the value in the Ledger field will also be pre-populated with the default value. You can override it by selecting another value from the list of options.

Inventory posting profiles

The inventory posting profile controls which main accounts will be used with each posting update in the inventory subledger and the general ledger.

Inventory management > Setup > Posting > Posting

There are also different types of postings in the production order process.

Material consumption

When you post the production picking list journal, materials are marked as used up in the production process. This action triggers issue transactions that reduce the available inventory. You have the option in the production parameters to record the value of raw materials currently being used (work in process or WIP) in the ledger.

These WIP values are then recorded in a specific Picking list account and a corresponding Picking list offset account. They are also posted to the Estimated cost of materials consumed and Estimated cost of materials consumed, WIP accounts.

The picking list process for each production order updates the inventory transactions related to that order. Once a production order is marked as complete, these physical transactions are reversed and the associated inventory transactions are updated financially. The Cost of materials consumed and Cost of materials consumed, WIP posting types are used when the final journal is posted.

The Production tab in the Inventory posting profiles page governs how production orders are recorded in the general ledger. This comes into play when the Ledger posting field is set to either Item and resource or Item and category on the Production control parameters page.

For a picking list journal to post to the general ledger for a production order, the following conditions must be met:

• The Post picking list in ledger checkbox must be selected on the Production control parameters page. This setting can be overridden for a specific site on the Production control parameters by site page.

• The Post physical inventory checkbox must be selected on the Item model groups page for the item selected on the purchase order line.

• The main accounts must be specified on the Inventory posting profile page for the following posting types:

  • Estimated cost of materials consumed

  • Estimated cost of materials consumed, WIP

Time consumption

When workers are busy with production tasks, their time is tracked in either the Route card journal or the Job card journal. Once these journals are posted, a special account for resources currently being used gets updated in the ledger. This update reflects the value of the time spent on the production order. Once the production order is marked as completed, the WIP accounts are balanced out.

Reporting finished good and error quantities

When a production order is reported as finished, the quantity of the finished goods that have been completed is updated in Inventory management through the Report as finished journal. If you're using WIP accounting, which can be set up in the production parameters, a ledger journal is made to reduce the WIP accounts and increase the inventory of the finished goods. The journal uses the standard cost that is defined for the product.

Ending the production order

Before a production order is ended, actual costs are calculated for the quantity that was produced. All estimated costs of material, labor, and overhead are reversed and replaced with actual costs. The overall cost of the finished item is debited from the inventory Receipt account and credited to the inventory Issues account. If you select the End job check box when you run the cost calculation, the status of the production order is changed to Ended. This status prevents any additional costs from being unintentionally posted to a completed production order. You can specify that the value of error quantities that are reported during reporting as finished should be allocated to the good quantities that are reported as finished. Alternatively, you can specify that the value of error quantities should be posted to a dedicated scrap account.

Controlling the level of ledger posting

In the Production control parameters, you can use the Ledger posting field to set the level of ledger posting for production processes. The following values are available:

• Item and resource: Use the ledger accounts that are set up on the item groups for raw materials and finished goods. WIP for time consumption is taken from resource or resource group from the route operations.

• Item and category: Use the ledger accounts that are set up on the item groups for raw materials and finished goods. WIP for time consumption is taken from the cost categories that are associated with the route operations.

• Production groups: Use the ledger accounts that are set up on the production groups for both material and time consumption. The production groups are associated with the released products and copied to the production orders when those orders are created. The posting on the production orders will then follow the production groups that are associated with the production order.

Production groups

Production groups establish a relation between production orders and the ledger accounts. You can use this option when configuring the production control parameters to use the Production group option. When this option is selected, the Production group in Production control > Setup > Production is mandatory on the production order, and all posting profile information will come from the selected production group.

The Production groups page is used to develop a list of production groups that you can select from to create production orders.

You can also use this page to assign ledger settings to all production orders that are included in the production group, when you use the production group settings as the posting principle.

When ledger settings are specified on the production group, all production orders in the group are posted to the ledger by using the same criteria as defined for the group. In other words, this posting profile is applied as a default to all orders that are part of the production group and controls how posting is performed and how costs are calculated.

Route groups

Each operation line in a route has a Route group specified. The Setup time, Run time, and Quantity fields on the Route group in the Estimation and costing group are used to control whether the time will be used for costing when posting a Job card or Route card journal on the production order. If the options are disabled, a voucher won't be created in the general ledger for the time consumption.

For a Route card or Job card journal to post to the general ledger for a production order, the following conditions must be met:

• The Setup time, Run time, or Quantity field must be selected in the Estimation and costing group on the Route group page.

• The main accounts must be specified in either the Cost category, Route, Route group, or Production groups page for the following posting types:

  • Estimated manufacturing cost absorbed

  • Estimated cost of manufacturing consumed, WIP

Each route line has one route group. The route group controls parameters for Setup time, Run time, and Quantity. The Cost category tab has three options for Setup, Run, and Quantity that are enabled based on the route groups setting. The Timings FastTab has three fields that are based on the route group.

The formula that's used is based on whether the option is enabled in the route group. The cost from the selected cost category is multiplied by the quantity that was entered in the timings to calculate the total cost.

If using operations scheduling, costs can be allocated by creating a route card journal for production orders. If using job scheduling, you can use job card journals to allocate costs.

Production journals

The production journals are used to report item consumption, route consumption, and finished items. They are a direct link to the ledger system because posting these journals involves posting to the ledger. Journal transactions are posted in the General ledger based on the ledger setting for the production order.

Production journals are divided into two components, the journal itself and the journal lines or actual journal records:

• Journals: The production journal contains information that pertains to all entries. This information includes the journal type, name, and number; and it collectively identifies which journal you’re working with. A production journal can also contain information such as status, the method that was used to post information, whether negative deduction is permitted, and whether certain kinds of errors are accepted.

• Lines: Journal lines reflect the actual records or entries present in the journal itself. These records can include a list of production materials ready for release, the amount of time consumed, the number of good and defective items, and so on. Because journal records contain item transactions that create financial transactions, the information in the records is also in the ledger.

Production feedback gives workers feedback about production jobs. It records time and material consumption on production orders, operation quantities and status, and errors that cause a job or operation to fail. Production feedback can be updated in journals that are related to production orders. The Production job card and Production route card journals are used to report time and quantities per job or operation.

For reporting about the last job or operation, quantities on the finished product can be reported as finished. Production feedback can also be updated on the Job card terminal and Job card device pages, which enable production feedback to be updated on the shop floor and are part of the manufacturing execution functionality in the Production control module. The Job card terminal page has a configurable user interface that shows a list of the released jobs in a prioritized order for a selected work area. It also offers advanced options such as job bundling and teamwork. The Job card device page has a touch-optimized user interface. Production feedback on both pages is updated from the production journals.

The time that workers spend on production jobs is recorded in the Job card journal or the Route card journal. When these journals are posted, the ledger posting to a dedicated account for resources that are in progress is processed. This posting represents the value of the time that’s spent on the production order. After the production order is registered as ended, the WIP accounts are settled.

When a production order is released you can print the production order documents, such as the job card, route card, and route job.

When the production order is Prepared/Picked the kanban cards or job cards that are required to report production progress should be assigned and printed.

When the production order is started if using job scheduling, you can allocate the costs by creating a job card journal.

To validate the job card of a production order, select a production order that has a Released or Started status follow these steps:

1. Go to Production control > Production orders > All production orders.

2. Choose the Production order that you want to create a route card journal for.

3. On the Action Pane, select View.

4. Under Journals, select Job card.

5. In the Job card journal form, select New to create a new line.

6. In the Name field, select Job.

7. Select OK.

Set up journal parameters

Use the journal parameters to define the kind of information that appears in production journals. You can configure parameters that direct Microsoft Dynamics 365 to update the journals at each step of the production process.

To configure parameters for journals, follow these steps:

1. Select Production control > Setup > Production control parameters.

2. On the Journals tab, in the Picking list field, accept the default journal, or select an alternative journal to record deliveries from inventory.

3. In the Route card field, select the journal name that you want to use for route cards.

4. In the Job card field, select the journal name that you want to use for job cards.

5. In the Report as finished field, accept the default journal, or select another journal for posting information when the production order is reported as finished.

6. Select the following check boxes as appropriate:

   • Mandatory cost category for quantity - Include the quantity cost category in the route and job card journals.

   • Automatic BOM consumption - Indicate that the system calculates and posts bill of materials (BOM) consumption in the picking list when you update a production order.

   • Automatic report as finished - Enable feedback for the last operation in the production to be automatically reported as finished.

   • Update capacity plan - Indicate that the capacity plan is updated when journals are posted.

   • Pick negative - Enable negative picking in the physical inventory during posting.

   • Physical reduction - Indicate that the material consumption is reduced to the on-hand quantity when inventory is insufficient.

   • Inv.-manage planned order qty. - Indicate that the planned order quantity should manage and appreciate the attached inventory transactions.

   • Accept error - Accept missing feedback for operations resource and item consumption.

   • Automatic BOM consumption - Indicate that the picking list for BOM consumption is updated for the current production.

Production journal types

Production journals contain a record of each of the different types of item transactions that occur when you are working with production orders. These item transactions have a direct effect on the company's financial records. Locate the production journals by selecting Production control and then Setup > Journals, and then selecting the journal type from the list.

The production journal types include the following:

• Picking list - This journal is a record of the raw materials that are drawn out of inventory.
• Route card - This journal is a record of the route consumption.
• Job card - This journal is a record of the resource consumption by using feedback job cards.
• Report as finished - This journal is a record of all finished items.

When a production journal posts, all item transactions are automatically transferred to the general ledger. Information that is posted from various journals in the system is used in the general ledger when company-wide financial transactions are calculated.

Process route card journals

To validate the route card of a production order, select a production order that has a Released or Started status and follow these steps:

1. Go to Production control > Production orders > All production orders.

2. Choose the Production order for which you want to create a route card journal.

3. On the Action Pane, select View.

4. Under Journals, select Route card.

5. In the Route card journal form, select New to create a new line.

6. In the Name field, select Route.

7. Select OK.

To create a route card journal follow these steps:

1. Go to Production control > Adjustments > Route card.

2. In the Name field, select the name Route card from the drop-down menu.

3. In the Production field, select the production order.

4. Select New under Journal lines.

5. In the Error quantity field, enter the quantity of the defective items that are associated with the current production operation.

6. In the Oper. No. field, modify the operation number of the production order route that the defective item was received from, if modification is required.

7. In the Warehouse field, enter the name of the warehouse for the defective item.

8. Select Validate to validate the journal.

9. Select Post to post and print the journal.

Create and process picking list journals

When a worker reports a manufactured item as finished, the system registers it as available for further physical processing. During this process, one or more journals are also posted (such as the report as the finished journal, picking list journal, and route card journal). If you want to make your items physically available before all postings have been processed, you can set up the system to defer the journal postings. Deferred postings are then managed by a batch job that will process the postings as system resources allow.

Turn on deferred journal posting for your system.

Before you can use deferred journal posting, it must be turned on in your system. Admins can use the Feature management workspace to check the status of the feature and turn it on. In the Feature management workspace, the feature is listed in the following way:

• Module: Production control

• Feature name: Make finished goods physically available before posting to journals

Feedback on consumption during production

If you want, you can direct the system to update production journals to provide feedback automatically after production is started. You can do this by selecting the relevant option on the Production control parameters page in Production control > Setup.

The following options can be selected in the Automatic BOM consumption field:

• Flushing principle - You can select individual items in the BOM to be released manually. All other items for which manual release is not selected are released automatically.
• Always - All items are released automatically.
• Never - All items are released manually.

The following options can be specified in the Automatic route consumption field:

• Route group dependent - If automatic consumption is selected in the routing group feedback and you include the setup and processing times, the route has automatic consumption. If not, the consumption must be entered manually.
• Always - All route consumption is entered automatically.
• Never - All route consumption is entered manually.

Production cost posting

Production costs are posted every time a journal is posted. The production costs accumulate in the Items in production and Work in process accounts until the production order is complete.

Production orders that are not ended have estimated production costs based on estimated quantities, and individual costs of quantities reported as finished are posted. However, the realized production cost is not calculated until the production order is ended. When the production order is ended, the final production cost is calculated by using actual production amounts.