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Dynamics 365 Community / Forums / Small and medium business | Business Central, N... / Internal Use Inventory...
Small and medium business | Business Central, N...
Suggested answer

Internal Use Inventory Adjustments

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Posted on by AXEON Man 864
How should I account for internal use inventory adjustments?
 
I want to be able to make inventory adjustments to an expense account that I use to track these things, and I use for use tax reporting since we have to pay tax when we use inventory internally.
 
I thought a customer General Posting Setup would make this easy -I use the Item Journal and select the posting group that makes the cost move to my expense account vs COGS.

What I discovered is that the Posted Setup requires the COG category be a COGs account -not expense.
 
So, how are others accounting for inventory that is used internally, and as a result has a tax obligation due to use vs resale?
 
Thank you.
Categories:
Dynamics 365 Business Central
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  • Suggested answer
    Gregory Mavrogeorgis Profile Picture
    Gregory Mavrogeorgis 254 on at
    Internal Use Inventory Adjustments
     
     Hi,
    How you can handle it in Business Central:
    1. Create a “COGS – Internal Use” account.
      BC requires this to be a COGS-category account, but you can still present it with operating expenses in your reports. Name it clearly (e.g., “Internal Use”).
    2. When you take the item for internal use, post a simple pull.
      Use your item journal with an “internal use” posting so the cost goes to COGS – Internal Use and inventory goes down.
    3. Record the use tax.
      Either make a quick journal entry (debit use tax expense or the same internal-use account; credit tax payable) or use a small “use tax” purchase invoice so BC calculates the liability.
    Why BC wouldn’t let you pick an expense account:
    It forces the posting to a COGS-type account. The workaround is to use a COGS account dedicated to internal use, then show it with expenses in your financial reporting.
    Nice-to-haves:
    • Add a Reason Code like INTERNAL_USE for easy filtering and audit.
    If you found this helpful please mark it verified
  • Suggested answer
    Rishabh Kanaskar Profile Picture
    Rishabh Kanaskar 4,501 on at
    Internal Use Inventory Adjustments
    Hi,
     
    There might be ways to achieve this. I think the standard way to account for internal use inventory in Business Central is to use the Item Journal with a dedicated Inventory Posting Group that maps to an expense account instead of COGS. This lets you move the cost out of inventory and into an internal consumption account.
    Steps:
    > Create a new Inventory Posting Setup for internal use with the desired expense account.
    > Post the adjustment through the Item Journal using that posting group.
    > For use tax, add a Purchase Tax Group or handle via a separate journal entry.
     
    The system requires COGS mapping for sales, but for internal use, you can bypass this by using a separate posting setup. Many companies also use Item Reclassification Journal or Consumption Journal for production scenarios.
     
    Thanks
    Rishabh
  • Suggested answer
    Valentin Castravet Profile Picture
    Valentin Castravet 29,543 Super User 2025 Season 2 on at
    Internal Use Inventory Adjustments
    What I discovered is that the Posted Setup requires the COG category be a COGs account -not expense.
    This isn’t true. You can type any G/L Account No.; it doesn’t have to be a COGS account. The lookup dropdown is filtered to COGS, but manual entry allows any account.
     
    Also, I wrote a blog post about the different ways you can consume inventory internally. Hope it helps - Recording Inventory Usage for Marketing, R&D, and Other Internal Needs in Business Central - Dynamics 365 Business Central Insights
     
     
     
     
  • Suggested answer
    RockwithNav Profile Picture
    RockwithNav 8,299 Super User 2025 Season 2 on at
    Internal Use Inventory Adjustments
    I am still thinking, what is the blocker?
    Once you use journal to adjust anything then system won't complain if the balancing account is direct gl.
    Between Inventory and expense GL it will be adjusted.

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