How do I account for my payments? I create a purchase order and then a purchase invoice for that order. Then I spend money. There are two options I am seeing to allocate that spent money. One through the accounts payable option under liabilities, which does not show any expenses for that item under expenses which also reduces my accounts payable under liabilities (understood on that one). The second option is to spend money and allocate that to an expense account ie. labels in the screen shots attached. However with this one, the AP on liabilities increases.
My question is I want to see how much I spend on items under expenses to understand my profit and loss, however on the balance sheet, I am still seeing a liability in the accounts payable?
You need to show a screenshot of the Purchase Invoice as that seems to where the problems is arising. After posting the Purchase Invoice the P&L Labels account should show 35.09
Your Purchase Invoice for Supplier - American Label - should have the Account = Labels.
This way your Accounts Payable would increase by 35.09 and P&L Labels would show 35.09
Then you would do the payment as per the first screenshot - Account = Accounts Payable.
This will reduce your Accounts Payable by 35.09.
In addition, under the BS Equity, that Suspense account shouldn’t exist. You need to click on the blue 1,500 and see what entry is causing that problem
Also, the Starting Balance Equity account shouldn’t exist either. Go to Reports - Starting Balances and compare those figures to the BS figures for your previous accounting system - they should match account by account.
In double-entry accounting (and therefore in Manager), the purchase order does nothing. It’s only a convenient way of communicating with your supplier and starting the workflow. The purchase invoice for this transaction does the following:
Dr: Expense account (such as Labels)
Cr: Accounts payable
No movement of funds is involved. When you pay the purchase invoice, the Spend money transaction does this:
Dr: Accounts payable
Cr: Cash account from which you pay
At this point, the Accounts payable balance for this supplier is zero, your bank account has decreased, and the expense account has increased.
That explanation really helped. As I looked into this. The “label”
inventory item is set up under the control account “inventory raw
materials” (Screen shot) and I only have two options- that one or
“inventory Finished Goods” So when the purchase invoice is created,
instead of Dr Expense account it Drs “inventory raw materials” I have the
custom expense account checked, but am not understanding how to get the Dr
to the expense account of “labels”
If you are taking the label up as Inventory Raw Material, then when you do a Production Order that label cost gets transferred to be part of the Finished Goods cost under Inventory Finished Goods. Then when the Finished Good is sold, that cost goes to Cost of Sales (Inventory - Cost).
The same process applies to all raw materials being converted to finished goods.
However, if you aren’t transferring the Label as part of a Production Order, then you should just expense the label cost instead of allocating to Inventory Raw Materials.
If you expense it, then you could create a Cost of Sales section in the P&L so all similar costs are grouped together.
I did not realize you were treating labels as inventory items, because your initial screen shots did not show the use of an Item on the payment form.
My explanation is still valid, but because you created labels as an inventory item, their costs can only be assigned to the accounts specified in their definitions, rather than a “generic” expense account. In my explanation, I assumed Labels was a generic account you had created for that purpose. If you want to track them as inventory items and have their cost reported to a custom account, you must select them in the Item field on forms.
So If I want the labels to show as an expense on the P&L side, do I go through a purchase invoice? If I do, how do I get the AP to reduce and the P&L-Labels increase after money is spent against the invoice? Is this the creating a “Cost of Sales” you mentioned? Why would I need to create a Cost of Sale group with the Inventory-Cost account and Labels account instead of using the Labels account already created under the Expense group?
On an original point you had. I solved the BS Equity- Thank you
As for the Starting Balance Equity- I did not have a previous accounting system, I started with IO from scratch. This is showing as I selected a start date with starting amount of some finished goods inventory on hand. How is it best to account for that inventory I had before establishing my raw material accounts? Do I need to uncheck the box for a 0 starting amount on the starting day and figure out the production amounts??
Have you ever been asked to do a personal review of a business’ IO set up (like mine) to make sure it is set up right? I am getting there, however have some issues. I would be interested in asking you this and seeing what your cost would be?
Your questions indicate a need for understanding of accounting principals before you’ll be able to use Manager effectively. There are excellent free resources on the web.
Yes, just use the P&L account “Labels” on the Purchase Invoice Account line. Don’t use the Inventory Raw Material Item. The Purchase Invoice will increase both the AP and the Labels expense. When you Spend Money to pay the Supplier that will then reduce the AP.
That was only a suggestion, but by doing so you can then review your Gross Profit (Sales minus Sale Costs) before deducting other expense to get to your Nett Profit. The Labels account is the same one as you have created, it just been re-allocated from Expenses group to Cost Of Sales group.
With regards to the Starting Balance Equity, the best way to assist would be if you posted a screenshot of the report at Reports - General Ledger - Starting Balances.
However, if you have taken up some starting Inventory Finished Goods values (say 2000), then you also need to take up a balancing entry. In your case that would be taken up in the BS Equity section in an account called Owners Contribution, which you would create under Settings - Chart of Accounts.
As for a review, provide a brief comment on your business and a screenshot of your Chart of Accounts, NOT the summary tab. Generally, once the COA set up is structured to suit the business you are ready to go.
Brucanna:
Yes, just use the P&L account “Labels” on the Purchase Invoice Account line. Don’t use the Inventory Raw Material Item. The Purchase Invoice will increase both the AP and the Labels expense. When you Spend Money to pay the Supplier that will then reduce the AP.
Here is one of the label inventory items- The control account is not selected and the “Custom Expense Account” is checked with “Labels” selected. However, in the purchase invoice screen (below) the only option that is automatically filled in is the control account selection. I cannot select “labels”. I am trying to use the “expense” option for this vs. the raw materials account.
When I spend money against an invoice and the payment is through AP the AP reduces and nothing shows up on the P&L under labels. If I select the labels account the AP increases and the P&L shows an expense.
I will set up a Cost of Sales for a couple of inventory items ie labels, jars, lids.
I am trying to get the P&L to show ingredient expenses and through inventory raw materials understand it should show after the item is sold. I have sales for these ingredient “inventory raw material” accounts, however there is nothing showing up in the P&L under ingredients.
Question- if I change a setting ie in an inventory account _after_it has been used in the production order, does that change follow and “update” the books?
@Rustictomato, you should create a test business with just a few inventory items and conduct experiments so you can understand what happens with every type of transaction without jeopardizing your real accounting records. You have so many questions, those trying to help you will get lost in the details. And the potential for misunderstanding is high due to the different ways people use terms. See the Guide:
Then just use the P&L account “Labels” on the Purchase Invoice Account line - see the example below - don’t use the Item field on the Purchase Invoice if you want to see P&L Expenses.
That’s correct, if you want the expense to show in the P&L
“Custom Expense Account” are “only” active when you sell that Inventory Item (the label) directly to a Customer, they will NOT be active if that Inventory item (the label) is used via a production order.
NO - You can not, repeat, can not transfer Inventory Raw Materials directly to P&L Expense accounts. Not only is It impossible, but why would you want to do that as it only defeats the purpose of having Production Orders.
Or put it this way, if you sold Finished Goods (A), how does the system know which label cost to transfer - Label (a) or Label (b) or Label (c) etc etc
You need to understand that Inventory Raw Materials costs get transferred to Inventory Finished Goods via the Production Orders and the Inventory Finished Goods costs get transferred to P&L Inventory - Cost via the Sales Invoice. There is no other option.
Once you have decided if you want to use either Inventory Raw Materials / Production Orders or direct P&L Expenses for the “labels, jars, lids” then we can review the COA’s
Through accounts payable (Accounts payable-> supplier name) but this however wont show up in the cash flow report, as expense category, but rather in an account called (accounts payable). It would however, show up in categories only in profit and loss statement.
Through expense categories (If you do this, the supplier balance will not decrease-“even if you choose name of supplier in the payment”).
My question is: If you choose Spend Money then select an Expense account, then choose the Payee name, Why doesn’t this decrease the Payee’s balance ?
Suppliers exist only as subsidiary ledgers (subaccounts) of Accounts payable. Transactions posted to an expense account do not involve a supplier’s subaccount. Only when posting to Accounts payable do you have the opportunity to select a supplier. The field does not appear otherwise.
When you post a transaction directly to an expense account, the Payee’s name has no financial effect. You are merely recording a name so you know who was paid. Think of it like this: You have a frequent supplier to whom you owe money for recent purchase invoices that are not yet due for payment under the terms of the supplier’s invoice. But you go to the supplier’s retail shop and pay cash for one small item you need right away. The cash payment does not change the amount you owe for the prior purchase invoices.
Items on purchase invoices were allocated to expense accounts when the purchase invoices were created. Payments against the purchase invoices are not new expenses; they are payments of Accounts payable. The small cash transaction, however, is posted to an expense account at the time of purchase, and it really doesn’t matter what supplier you bought it from.
Your input is well noted. But sometimes small cash transactions can be representative of suppliers in payables. In your type of business which is a small business retail shop. Mine, however is a residential complex. I have two fuel suppliers, so in expense accounts, I have a “Fuel” expense, and two suppliers are contributing to that expense.
If I assign a supplier name to “fuel” expense, the accounts payable does not decrease, Hence I cannot print SOA for each supplier, because the credit would not show. Got my point ?
Again thanks for your prompt reply. I appreciate your input on that matter.
