I will try to present idea.
One possible way to operationalize this in Business Central would be to separate the commercial invoice from the physical inventory and costing flow.
I would create a dedicated location for inventory held at the co-processor. When raw materials are sent to them, the materials would be transferred from the company warehouse to the co-processor location. This keeps the inventory on the company’s books while also showing where it is physically held.
The invoice issued to the co-processor could be posted using a dedicated balance-sheet clearing or financing account rather than an inventory item and revenue account. This would create the required customer invoice and receivable without posting normal revenue, COGS, or an inventory decrease.
When the finished product is completed, the raw materials would be consumed from the co-processor location and the finished item would be posted as production output. If the finished goods remain physically at the co-processor, the output could initially be posted to a dedicated co-processor finished-goods location.
The co-processor’s vendor invoice could then be separated into two accounting components:
- the amount representing the previously invoiced raw material would be posted against the same clearing or financing account;
- the actual processing charge would be included in the cost of the finished product.
The resulting finished-good cost would therefore consist of the cost of the consumed raw materials plus the co-processor’s processing charge and any other eligible direct costs.
If Manufacturing and Subcontracting are being used, this can be structured with a production BOM, production order, subcontracted routing operation, transfer orders for the components, and a subcontracting purchase order. Business Central can then consume the materials, record the finished output, and add the subcontracting cost to the production order.
If Manufacturing is not being used, a similar process could be implemented through controlled item journal entries: negative adjustments for the consumed raw materials and a positive adjustment for the finished product. However, the finished-product valuation must be carefully controlled so that it includes the raw-material cost and processing charge exactly once. A small extension could automate these journal entries when the co-processing receipt is posted.
I would avoid receiving the finished item at the full vendor invoice value and then separately consuming the raw materials, because that could double-count the raw-material value in the finished-product cost.
The exact clearing-account structure, tax treatment, and presentation under ASC 606 and ASC 470-40 should be confirmed with the company’s accounting advisers or auditors, but from an ERP perspective this approach separates the legal document flow from the inventory ownership and cost-accounting flow.
we implemented similar concept for our customers.
Kind regards
Tarik Jerković
