DESKTOP EDITION CLOUD EDITION SERVER EDITION GUIDES FORUM

How to record raw materials purchased and how to show when its been used?


#1

I am having troubles understanding how to properly account for raw materials that are purchased for my business so when I use some of that raw material it goes from being an asset to income.
I have a welding/fabrication shop, I purchase steel in lengths or sheets, as well as paint and misc job materials for whatever project I am working on. My biggest problem is figuring out how to account for a piece of steel in projects when I do not use the entire length because i do not charge my customer for a full length if i only use a quarter of it. Any advise would be greatly appreciated.


#2

Hi AAmey

You can add raw material as inventory and add the Unit name (Pic Below) as QTY and the charge out of inventory as line items per job. This might change the way you keep stock because you now have 200m of flat 2mm steel instead of 10 x (6m x 2mm) lengths in stock. However you can now charge p/m out of inventory on the invoice. http://guides.manager.io/businesses/inventory-items

The other way would be to use the scenario as above but use Production orders to add new inventory item out of your existing stock to sell again. You can see how this work in the guides: http://guides.manager.io/businesses/production-orders


#3

I think that you should be using Production orders not inventory for this. Inventory is for you buy a piece of metal and you sell that piece of metal. Inventory is for sale of costs not for manufacturing.

Production orders are when you buy a piece of metal and you make something with some of that piece of metal but you still have some metal left over. You are manufacturing something so you need to use Production Orders. I don’t use this module as I don’t need it, so you will have to play with the settings and see what to do.


#4

Thank you for the good leads, I will try and play around with the production order functions in a test company, and see how that works out.
At present I have all my raw materials purchased as expenses and when I make an invoice I charge from those expenses. My summary page shows a negative in my materials category because I charge a material mark up, but that mark up doesn’t reflect on my income because I am obviously not applying it properly. I have a few issues that I need to address before I go see the tax man.


#5

That would cause problems. You should not consider the balance in the expense account as a resource to draw upon. It is a record of money you spent on your operations.

It sounds like you would benefit from a little background reading on inventory accounting. You could start at http://www.accountingcoach.com/inventory-and-cost-of-goods-sold/explanation.


#6

Excellent thank you for the link. I know the process that I have been doing is wrong. I will do some reading because I am getting more and more confused as I try to make sense of it all.