capitalize_internal_labour
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capitalize_internal_labour [2012/06/13 23:12 (12 years ago)] – created 119.225.209.134 | capitalize_internal_labour [2013/11/14 16:55 (11 years ago)] – tanya | ||
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====== Capitalisation of Internal Labour ====== | ====== Capitalisation of Internal Labour ====== | ||
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- | * Internal labour | + | There is a trend for customers in Power Sport, or Marine, where they have Units that they want to show a true cost of, and they do their own labor. Consider |
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+ | Taking the cost and treating it as an asset is deferring the expense and inflating the Inventory asset on the balance sheet. These need to be considered | ||
- | A separate category for internal labour is set up. The Category type is Labour, and the significant difference is to use a Technician Wage offset account to store the values capitalised to Units when the service is provided. This account offsets the Regular technician wage expense account. | ||
- | {{capitalize_internal_loabour-001.jpg|}} | + | Internal Labour Capitalized to Units before Selling. |
- | As the Internal Labour is to be kept out of Income and Cost of Sales, what is used in place if these numbers in the category setup is a ledger account for “technician wages offset”. This account will be used during | + | * • Units that regular inventory can have other existing inventory attached or included with them. An enhancement or the modification of an existing unit would be examples |
+ | * • As labour, | ||
- | {{capitalize_internal_loabour-002.jpg|}} | + | * • Internal labour is also something that is expensed through paying technician wages, so this also needs to be considered. You do not want double posting of tech time through service invoice and through payroll. |
- | The internal labour | + | A separate category for internal labour is set up. The Category type is Labour, and the significant difference is to use a Technician Wage offset account to store the values capitalized |
- | {{capitalize_internal_loabour-003.jpg|}} | + | |
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+ | As Internal Labour is to be kept out of Income and Cost of Sales (because it is capitalizing to the unit, “not” being sold), what is used in place of these numbers in the category setup, is a ledger account for “technician wages offset”. This account will be used during the service invoice. | ||
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+ | The internal labour part is setup with a retail price being the price you want to book for internal labour. (In this example, the amount the unit landed cost was increased $25.00.) | ||
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When the item is sold on the Service invoice, it will show up at the 25.00 per unit of labour. Add the tech information as usual. | When the item is sold on the Service invoice, it will show up at the 25.00 per unit of labour. Add the tech information as usual. | ||
- | Keeping the Internal Labor costing aside, when wages are paid by an employer, they accumulate as an expense in a Wage Expense ledger code. (Some companies have multiple wage accounts, example, shop wages, office wages, mgmt wages.) | ||
- | If we make journal entries directly to these accounts, payroll auditors looking at this would not be very pleased. Even though it makes sense to do it, as we are taking wages and making them part of the cost of a unit, why shouldn' | + | |
- | Well this has been determined to be the incorrect way of doing it, and a special ledger code for "Wages offset" | + | |
- | {{capitalize_internal_loabour-004.jpg|}} | ||
The 25.00 has been capitalized to the Unit… | The 25.00 has been capitalized to the Unit… | ||
- | {{capitalize_internal_loabour-005.jpg|}} | ||
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- | The ledger postings will occur as follows: | ||
- | * A Debit or increase to 1200 Inventory (required, as the landed cost is what will eventually decrease 1200 inventory when the unit is sold), | ||
- | * A credit or decrease to the Tech Wages offset account. This account can be set up sequentially close the regular wages account. As we are capitalizing some of the tech wages to a Unit, when that unit eventually sells, the value of the tech time is capitalized to the unit landed cost and this ends up in Cost of Sales. If we did not offset the wages, then you would be double expensing the tech wages. | ||
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- | (Note: posting to the offset account is done to prevent posting directly to the wages account. A cleaner ledger account for payroll is reserved in case of auditing) | ||
- | {{capitalize_internal_loabour-006.jpg|}} | ||
+ | The ledger postings will occur as follows: | ||
+ | A Debit or increase to 1200 Inventory (required, as the landed cost is what will eventually decrease 1200 inventory when the unit is sold), | ||
+ | A credit or decrease to the Tech Wages offset account. This account can be set up sequentially close the regular wages account. As we are capitalizing some of the tech wages to a Unit, when that unit eventually sells, the value of the tech time is capitalized to the unit landed cost and this ends up in Cost of Sales. If we did not offset the wages, then you would be double expensing the tech wages. | ||
+ | (Note: posting to the offset account is done to prevent posting directly to the wages account. A cleaner ledger account for payroll is reserved in case of auditing) | ||
- | ===== EXTRAS ===== | ||
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+ | EXTRAS | ||
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The Unit Setup is as follows: | The Unit Setup is as follows: | ||
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- | When the option “Do not Post Service invoices to Income or Cost of Sales” is turned ON, System Five will sell the item on the invoice as per normal but the retail price is the same as the cost price. | ||
- | So when the invoice is posted to the ledger we see that the landed value of the inventory is being taken from the Inventory on Hand account. This is not being put to the Cost Of Sales account but rather, it is going back into the Inventory On Hand account to increase the Landed value of the unit being serviced. This is being done by ‘bouncing’ the amount off the Income Of Sales account. | ||
- | ^Item ^Description | + | Important Financial Note: Verify with your State, Province, and/or Federal |
- | |**1200 | + | |
- | |S S0000012 MARYBOROUGH MOTORCYCLES | + | |
- | |S S0000012 MARYBOROUGH MOTORCYCLES | + | |
- | |**4100 | + | |
- | |S S0000012 MARYBOROUGH MOTORCYCLES | + | |
- | |S S0000012 MARYBOROUGH MOTORCYCLES | + | |
capitalize_internal_labour.txt · Last modified: 2013/11/14 16:58 (11 years ago) by tanya