Hello, need some advice on how to correctly go about writing off items but then salvaging parts for resale. Please let me give a example situation so someone can help me out here.
Lets say i have purchased an item for £100 and this item was sold but returned to me broken. I can break this item down into 10 different resell-able parts at a loss.
I want to write this item off but then inventory 10 salvageable items for resale. These 10 items are only worth maybe £50 so there is a loss to account for but some money to be regained.
What i have tried to do is first use a journal entry to write the item off by crediting inventory on hand for the amount i originally paid for the item (£100) and debiting an account created called “salvage write offs” for the same amount.
I then created all the inventory items salvaged and used another journal entry crediting the “Salvage write off” Account with the original price paid (£100) and debiting all the individual parts i salvaged from the item. The prices for the items i have just made up-to the £100 to balance things out.
This is something i am probably going to do again going forward so need some help. I don’t think what i have done is right at all but just cant get my head around it at the moment.
Would really appreciated a little guidance. Some of the items salvages are literally only worth £5 or so but i have had to put the value of them higher to balance things out in the journal entry and I am thinking that this will account for the loss when selling these items on. I obviously don’t want to be doing anything to misrepresent my stock value so was hoping someone can set my straight here. thanks
Firstly you can do it all in one Journal and if there is a differential between the original inventory cost and the salvage inventory “cost” then expense that differential.
Cr - Inventory on hand - original item
Dr - Inventory on hand - salvage item 1
Dr - Inventory 0n hand - salvage item 2
Dr - (P&L) Loss on Salvage
In the past there was no loss to account for and i only had to Dr item 1, item 2 etc as a breakdown of the price paid.
One more follow question if i may. When pricing these items and accounting for the loss am i pricing the items as what i normally sell them for and the remainder the loss that i expense?
Also i sometimes sell these items on eBay with best offer. Does this matter that at a later date the item i have priced in the journal may actually sell for slightly less?
I do apologise if these questions are rather simple but i enjoy using manager and am no accountant, i only have basic bookkeeping knowledge. I find manager straight forward in most cases, the guides and this forum really helpful. Thanks for helping. I need to declare my earning tomorrow and was up all night going over my accounts and think i spent way too much time at the computer
No. Because you are posting to the Inventory on hand account, you should use the cost the program used for the sale. You can look that up by drilling down on the Inventory - cost account under Expenses. That is how much cost was associated with the transaction when you sold the item. This was the current average cost at the time of sale for that inventory item. Think of it this way: you did not lose the value of the sale (although you have given up that income); you lost the cost of the inventory that was broken.
There is another aspect of the situation not covered by the journal entries adjusting inventory. That is the adjustment of your customer’s account. You should issue a credit note reducing the amount they owe you. That is where the loss of income will be accounted for.
No. The salvaged items are back in inventory at their average cost as of the first sale. You can now sell them for more or less. Manager will convert their current average cost to an expense in Inventory - cost at the second sale. You might make a profit or sustain a loss based on your sales price. But that is a completely separate transaction from returning the salvaged parts to inventory. And it is no different from an ordinary sale.
Thanks for that explanation TUT, before asking anything further on this point i am going to think about all that has been said above and go over this later this evening. It is making much more sense after reading what you have said so again thank you for taking the time to provide me with an answer.
Regarding the customers account you mentioned. All my sales are currently cash sales and no customers owe me anything. When i refund a buyer for any reason, be it a partial refund or full refund upon return of an item i have been doing a “spend money transaction” not a credit note. I use 2 lines, one for the amount i pay them and one to add the item back to inventory if needed. I thought this was ok as it records the outgoing payment and also adds the item back to inventory ready for resale. However is this is completely incorrect i am going to have to go over every refund i have ever issued
I cant really see anything wrong with the way i have done this but need to know so if you could clarify this for me it would be really appreciated.
Part of what you are doing is correct, but part is wrong. You can bypass the credit note since you did not enter a sales invoice. So there is no account receivable to reduce. Had you used a credit note, you would then still have needed to make a payment.
But your two-line entry is wrong. See this Guide: Manager Guides. When you made a cash sale of an inventory item, you selected the item and its cost was posted to Inventory - cost by default. When you record a cash payment for a return, you should also select the inventory item. Several things happen at once, all from one line item:
Your cash or bank account is credited by the amount paid to the customer
Your sales account is debited to reduce revenue by the amount you paid back
Inventory - cost is credited to reduce your cost of goods sold (because you just bought it back)
Inventory on hand is debited to reflect the addition of the item back to stock.
The way you were doing things, you were double counting the payment part.
Ah, i see now. Your above example along with the guide makes it clear as day for me, thank you.
So correcting my mistakes are going to be as simple as removing line 2 and selecting the inventory item on line 1, manager will take care of the rest in terms of the inventory etc automatically.
I sometimes have trouble fully grasping things when reading and need to hear things a different way, you have the art of being able to do this so again many thanks for the clarification. I will start going through and correcting them now and then move on to the salvage breakdown situation. I’m slowly getting there
Before i go through to many of these, this is one of my first refunds issued.
Can you confirm this is correct before i go through all of them please. Notice i have used a line with minus sign (-) to account for the papal fee reimbursement i received when making the payment to the customer and have selected the inventory item on line 1.
Correct way to do this in manager?
105.29 is what you actually paid out to the customer.
You were charged 3.71 by PayPal on the sale (and entered that as a negative amount on the sales receipt), and will now get it back from PayPal because of the refund.
I issued the refund for £109 but PayPal did reimburse me the £3.71 so i actually paid £105.29 to the customer with PayPal paying the remainder.
Also yes when recording the sales i make via my PayPal statement i do include the PayPal fee i paid as a negative so all seems good to me, i will continue to edit them as suggested. Thanks TUT your help is invaluable right now.
Can you advise me on how to deal with items that were literally handed to me from a seller i purchased from.
This does kind of relate to a breakdown of items and how to input them. Ive not come across this situation before. I purchased a joblot of items (gaming consoles mainly) however when i was at this persons place collecting the items the guy handed me 2 bags as i was leaving and said i have no use of these so have them if you want. I wont turn down free things so i obviously took them with me and thanked the guy.
After getting home it turns out there are many items (laptop chargers, control pads and other stuff) that are actually worth much more than i paid for the console joblot :). Yet i have no paper work or any proof as to where these items have come from and there are maybe 50 different sell-able items.
I want to inventory them and sell them ASAP but as i dont actually have a trace of purchasing them im unsure how to deal with it.
Should i just “spend money” and add all of what ive received to the existing purchase? Or would i have to only add the inventory listed in the original sale and treat these 2 bags of goodies separately?
If i can add them all to existing purchase then can i just put what i would call a reasonable price on the items providing the total is inline with the total i paid for all of this stuff?
Your situation is simple. Since you’ve said you want to place these “free” items into inventory, put them on the same purchase invoice or payment (if cash purchase) as the items you meant to buy. List the actual quantities. You have two choices for pricing:
Show a unit price of zero. You will end up with X units in inventory at zero average cost. Manager handles that just fine. In fact, most inventory items go to a zero average cost every time you run out of stock before replenishing.
Make some reasonable allocation of the total you paid to the “free” items. This will lower the average cost of those you meant to buy and give at least a modest worth to the freebies.
Personally, I’d let the purchase transaction reflect reality: you bought X units at zero cost. But either approach is defensible under even the strictest accounting scrutiny. Just add a note to the purchase transaction explain what happened.
