It happens from time to time: you run a Job Cost report and a big project you just finished shows no profit. Or your tax accountant calls and wants to know why your Inventory account is in the negatives. How does this happen? It happens when your costs get double-stated. It's not likely that you're actually missing money - and the error is usually easy to correct. But it would be best if it was avoided altogether.
Ways To Track Costs
- The most common place in which ESC will track costs for your work will be on a Sales Invoice. As inventory items are added to an invoice, the costs for those items will also be transferred to the invoice. It is also possible to enter costs for Billing Codes on an invoice. This makes it possible to account for fees, miscellaneous purchases and other costs you may incur that are not related to inventory. Tracking costs on your invoices allows you to run accurate Sales Reports and view your profits.
- ESC also has the ability to track Job Costing. Jobs can be added to Purchase Orders, Quotes, Dispatches, Invoices and Credit Memos. You can also transfer inventory items directly to the Job if ESC is integrated with an accounting system.
- If ESC is integrated with an accounting software - or you're using ESC Accounting - it is possible to turn a Purchase Order into an Accounts Payable bill. Directing the bill towards a cost account, rather than an asset account, may cause your costs to be double-stated if those same costs end up on an invoice later.
How Do Costs Get Doubled?
Costs are overstated when more than one of the above methods is used on a single transaction.
For example: You order items for an installation project on a Purchase Order. When that Purchase Order is received, you elect to turn it into a Bill in your accounting software. Rather than pass the Bill amount to your Inventory Asset account, you opt to pass it to Cost of Goods Sold. Once the project is completed, you add the materials used to the invoice, which is then posted to your accounting program. The costs on the invoice are pulled from the Inventory Asset account and sent to the Cost of Goods Sold account. Now, the Cost of Goods Sold account and your Inventory Asset account are both wrong.
Now, let's imagine you are tracking Job Costing for this project. Not only are your account balances wrong now, but your costs for that specific Job are overstated and therefore your reported profit will appear very small (if any).
Speaking of Job Costing, it is possible to track the costs of a Job in ESC by transferring materials used directly to the Job using the Inventory Job Transfer screen. This is one way in which you can track your costs daily, rather than creating an invoice. But if you also add your materials to the invoice at the end of the project, your doubling your costs again.
How Can I Avoid Doubling Costs?
The best way to avoid doubling up on your costs and throwing off your accounts is to establish a procedure and stick with it. You also want to avoid directing your A/P Bills directly to your Cost of Goods Sold account. Generally, when receiving materials for your services, the amount paid for those materials would be credited to your Inventory Asset account in your accounting software. When those items are transferred to a Job or sold on an invoice, the value of those items will be removed from the Inventory Asset account and added to the Cost of Goods Sold account.
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