Item Charges in Business Central: How to Use Them (and Why You Should Avoid G/L Accounts)

One of the most common issues I come across in Business Central projects is how companies handle freight charges on vendor invoices. It's quite typical to see them entered as G/L account lines — but that’s not the correct approach.

Let’s take a closer look at why, and how Item charges can be used instead for accurate inventory valuation and cost control.

Common Mistake: G/L Account Lines

Inserting freight charges as G/L lines doesn't increase the value of the purchased item. This leads to several issues:

• Inventory valuation is inaccurate

• Actual item cost becomes unclear

• For manufacturing businesses, finished product cost is distorted

The Correct Approach: Use Item Charges

Business Central provides a specific line type designed for this purpose: Charge (Item).

Item charges are managed through a dedicated record that includes:

• assignment to a General Product Posting Group

• and a VAT Product Posting Group

What makes them powerful is that the charge entered on these lines can be allocated to the item lines in the purchase order — effectively increasing their cost.

Practical Example

Let’s say you create a purchase order for two items.

The vendor charges €400 in freight costs.

Instead of inserting this amount as a G/L line, you use an Item Charge line.

Once the line is entered, you can select Item Charge Assignment under the Line menu, which offers four distribution options:

1. Equally – the amount is split evenly across all item lines

2. By Amount – the amount is distributed proportionally based on line value

3. By Weight – based on each item’s Gross Weight field

4. By Volume – based on each item’s Volume field

Each option results in a different cost distribution, so it’s important to choose the one that best reflects your operational reality. You can also assign charges manually using your own logic.

In our example, we select By Weight.

The system distributes the total charge based on the Gross Weight specified in each item’s card.

Final Result

Once the receipt and invoice are posted, the result is visible in the inventory valuation.

At the Item level we we can see the following result:

The unit cost of item 1908-S increases from €150.00 to €157.438 (+5%), while item 1920-S increases from €500.00 to €513.054 (+2.6%).

The distribution method chosen for shipping charges significantly impacts the cost of individual items — and, if the item is a raw material, the cost of the finished product as well.

Conclusion

Using Item Charges correctly in Business Central not only improves inventory valuation but also provides a clearer picture of real product costs. It’s a simple but essential step in maintaining accurate cost management and margin analysis.

If you'd like to explore this topic in more depth or need guidance for your implementation, feel free to get in touch.

👉 I also offer targeted training on this and related topics in my Business Central courses.