Trade and Logistics 2 (Item setup 1)

Item setup: Item group


We Learned how to create a company and how to import data into it Creating a New Company

All companies have a list of items (goods) to work with. Today, we will create a new item and discuss why some fields are mandatory. In Microsoft Dynamics AX, the list of items is maintained in the Item form located under Inventory management > Common Forms > Item details.

Let’s assume that our company resells bottles and cans, an inventory manager needs to create two new items in the Item form: Bottle and Can.

First, we create the Bottle item. Open the Item form (Inventory management > Common Forms > Item details) and press CTRL+N. In the Item number field, type 1. And, then type Bottle in the Item name field.

create new item

The Item group field contains a red wavy line which means it is a mandatory field. On the General tab, there are some other mandatory fields. They are the Item group, Inventory model group, and Dimension group fields. Refer to the following explanation why these fields are mandatory.

Item Group


What should we know about the item Bottle? This question has several answers, for example, we need to know its color, size, price, and inventory unit. But, what is the Item group? We should answer simple questions what general ledger accounts will be used when we post an item transaction. Item transactions are created when an item is, for example, purchased or sold. In Microsoft Dynamics AX, we use the Item group to set up general ledger (or posting) accounts.

What are a general ledger accounts and why should we use them when purchasing or selling an item? This question will be disclosed in the Microsoft Dynamics AX Financial Training. But, before I will create it, you can understand the Financial area yourself.
The great training about Accounting is stored here.

Now, I will try to explain some Financial concepts. Look at the following figure, a company from a financial point of view is a circle with assets, liabilities, and equity parts.

Company from financial point of view

Where Assets = Liabilities + Shareholder’s Equity. Assets are items and money that customers should pay to a company – bank accounts, cash, and fixed assets (for example machines that produce goods). Liabilities are money that a company should pay to vendors – payroll (salary to workers), tax amount, insurance, and bank loans. Shareholder’s Equity is the money that a company should pay to company investors or shareholders (amounts invested into the company by the owners plus the cumulative net income of the company that has not been withdrawn or distributed to the owners). Why is the Shareholder’s Equity separated from other parts of the circle? Because it contains the information about the amount of money that a company should return to shareholders (This is the main purpose of all companies =) ).

General ledger accounts are used to store the information (amount of money) about a concrete type of assets, liabilities, or Shareholder’s Equities. For example, in the Microsoft Dynamics AX demo data we have such accounts as Bank Account USD, Bank Account EUR, Accounts receivable (money that a company should pay to vendors), Car audio receipts, DVD player receipts, etc. (The path: General ledger > Common Forms > Chart of Accounts Details). Here, we can always find the information about, for example, how much money we spent for purchasing Bottles for the last month. If we don’t have a general ledger account how could we do this?

General ledger accounts

If a company keeps accurate records, the accounting equation will always be “in balance,” meaning the left side should always equal the right side. The balance is maintained because every business transaction affects at least two of a company’s accounts. For example, when a company borrows money from a bank, the company’s assets will increase and its liabilities will increase by the same amount. When a company purchases inventory for cash, one asset will increase and one asset will decrease. Because there are two or more accounts affected by every transaction, the accounting system is referred to as double entry accounting.

A company keeps track of all of its transactions by recording them in accounts in the company’s general ledger.

Let’s return to our Bottle item. We should create general ledger accounts for this item for any possible case. Luckily, I use the demo data and so do you. So, let’s use the existing Item group for the Bottle item. In my demo data, I select the Packaging item group.

Item group

How can we find out what general ledger accounts are assigned to the item? We can do it by either right-clicking in the Item group field and selecting the Go to the main Table Form option or by opening the Item groups form (Inventory management > Setup > Item groups). In the Item group form, we see different tabs with many fields. All these fields contain the information about which general ledger accounts will be used to store the amount of money for specific item status (sold item, purchased item, purchased but not paid item, applied discount amount, etc.). For example, go to the Purchase order tab, the Invoice field group, Receipt field. This field contains a general ledger account that stores the amount of money that has been spent for purchasing. The Packing slip field contains the general ledger account that stores the amount of money that will be spend for the item that is already in a warehouse (Vendor hasn’t asked to pay for them yet).

Item group form

Don’t be frightened right now as we will understand AX features when we discuss certain business processes.

Summary


In this post we have created a first item, got acquainted with mandatory fields, and given consideration to the Item group.

In my next post, we will get acquainted with the Inventory model group and Inventory dimension group.


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