Landed Cost - Multiple Vendors

1

I run a E-Commerce website in Dubai. I would like to know how to account the following type of transaction.

We purchase goods from China (in US$).
For example, if the supplier invoice total is $1000, and $50 for freight (Through Courier or Freight Forwarders) and as the payment is made from my AED Currency account from my bank account in Dubai, there are bank charges + exchange difference which will be in AED Currency.
Also, I pay customs duty locally in Dubai (In AED), say AED 100.

How do i add all this as part of cost of the goods that arrive? If i add this through the “Freight-In” option in Purchase invoice, the customs duty charged locally will also be part of it. But this will show a higher price of the supplier invoice in the Vendor’s account.

Could some one show an easy way to do this (preferably with screenshots).

Thanks

2

Have a read of this topic which worked through an import situation

3

By doing this procedure, will the other costs get divided amongst all the inventory items, or only to the items part of this purchase invoice?

4

For both Purchase Invoice and Spend Money do not use “0” for Qty. The quantity field must be empty (blank) or the cost will not be charged against an inventory item. Here is the warning from the guide:

Caution
Be sure to edit the Freight-in line item so Qty is blank, not zero, or no amount will be calculated and no freight-in cost will be apportioned to the inventory items.

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5

To have an “other cost” charged to an inventory item, choose the inventory item when entering the cost.

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If you do not choose an inventory item, then under Account in the Purchase Invoice you will have to choose an expense account. Then those other costs will be general business expenses, and not part of the cost of inventory.
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6

Actually my previous post was poorly drafted - so I will be editing it - what I should have stated:

Where there is a separate invoice for freight-in, you don’t add any inventory to that invoice but you add the freight-in to the original inventory purchase invoice and then reverse out with a contra account, then the separate invoice for the freight-in gets posted to the contra account to cancel it out.

Original Inventory Purchase Invoice amended for separate Freight-in Invoice

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Separate Freight-in Invoice posted to contra account to cancel out separate take up

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7

@siyab, I am not contradicting anything @Brucanna has said. But I want to point out that he is giving you a way to apportion freight-in costs automatically to inventory items on the original purchase invoice when the freight-in invoice comes from a different supplier. This method requires the creation of the Freight-in contra account to avoid recording too high a payment to the supplier.

There is another way to accomplish the same goal with the manual approach, and it does not require the separate contra account. To do this, decide how much of the freight-in charge you want to apportion to each different inventory item. (This could be based on number of units of each, value of each, or some other scheme.) Then enter a purchase invoice for the freight supplier with a line item for each inventory item on the original purchase invoice. Leave all quantity fields blank. Divide the freight-in charge according to your decision. The portion of the freight-in charge that you have allocated to each inventory item will be applied to the total cost of that inventory item on hand to adjust average cost.

In addition to avoiding the creation of the Freight-in contra account, the second method lets you control how costs are apportioned between line items. In the automatic method, apportionment is based on line item total amounts. Depending on the situation, you might think that is not the best method.

8

[quote=“Tut, post:7, topic:10646”]
Then enter a purchase invoice for the freight supplier with a line item for each inventory item on the original purchase invoice.[/quote]

This would be rather laborious if you had 10 + inventory items on the purchase invoice, plus, if the purchase invoice had more then one related freight-in invoice/charge to be proportioned (import agent, customs, bank charges) then all those inventory items would have to be re-entered for each separate invoice/charge, this is just unnecessarily and excessive duplication.

Any decision beyond straight forward pro rata per item would require a spreadsheet to calculate especially if you decide to proportion each charge within an invoice differently.

The simplest approach is to accumulate all the various freight-in charges in the contra account and then redistribute via the added entries into the inventory purchase invoice.

9

I agree with your points. I was just pointing out an alternative, particularly because the automatic approach does not apportion charges on a per item basis, which you rightly call straightforward. It apportions based on value; so small, cheaply shipped items that are expensive bear more of the freight-in cost than cheaper, more expensively shipped articles. Obviously, you can make cases for all kinds of apportionment schemes. My method lets you put them into play, if you want. But there is no doubt your method is a slick approach that could simplify things when freight-in (assuming that includes brokerage, handling, customs clearing, and a wide range of other charges) is complex.

Another example where we are in violent agreement. :wink:

10

This is exactly our worry here. We have 100’s of invoices and 1000’s of products. We dont want to end up doing spreadsheets for each and every invoice.

Now, could you please explain the Freight-in Contra account in more detail.

  • Where will this account be in the COA.
    -The supplier invoice is in $ but the Customs duty is charged in my Local Currency AED. Though I will convert the Customs value to $ while doing the contra entry (in the Purchase Invoice). But how do I pay them off in AED if the contra account also holds the amount in $.

Similarly, the bank charges need to be absorbed by each inventory item in each shipment as we deal with Payment-in-advance to suppliers. Do i need to create a separate contra account for Bank Charges too?

11

I think you are doing this backwards. The product may be listed / advertised in US Dollars, but you are not buying in USD from a USD bank account. You are buying in AED from an AED bank account. Your bank takes care of the exchange for you and posts what you paid in AED.

It is also complicates things to translate the Customs Fees to USD. You are keeping your accounting records in AED so record the transactions in AED.

Use as an example your 1000 USD product. When you pay for this, your bank converts the amount to AED and charges a premium for doing so. Let’s say the bank charges 3.85 AED per USD, so you paid 3,850 AED for the product. That is what you should record. If you like you can make a note in the Description like this: “1000 USD @ 3.85 FX”.

If in the future you open a USD bank account and use USD to buy, then at that time you can adjust the Chart of Accounts and other settings and start recording the transactions in USD.

12

The Freight-in Contra account is a Liability account.

13

How can I add AED amount to a USD Purchase Invoice. Customs duty needs to be added to the inventory cost of that particular order.

The USD amount which gets entered into the contra account gets converted to my base currency automatically and then i Spend Money to the contra account in AED.

14

Did you read through the above linked topic “Importing of goods”, as it has a fully worked example using three currencies but uses an “Import Clearing” instead of “Freight-in Contra” account.

No, all related charges are accumulated within the one “clearing” account.

If you have any further difficulties then post screenshots of your invoices (or dummy look alike invoices) relating to an importation and we can work through any missing steps.

15

@siyab, I don’t think I explained myself well, so I edited this post to try and do better.

You have set-up the Chinese supplier as using USD. So when you enter his invoice in USD, Manager converts the amounts to AED for the Balance Sheet, and Profit and Loss. That part works well.

The problem is you want to use the method that @Brucanna described, but Manager will not allow you to enter different currencies on an invoice. The Chinese supplier is set-up as USD, so you must enter all amounts as USD. However, you have other costs that you want to put on that invoice and those costs are in AED.

As a work-around, you can manually convert the Custom Fees and other costs to USD. I think there is a better suggestion: remove the USD Currency from the Chinese supplier. Now you can put all the costs on the one invoice in AED. The invoices that you make for the Freight-in Contra account can also be made in AED.

This simplifies you work, because you know what all your costs are in AED (the payments you make are in AED from your AED bank account). You don’t have to manually enter exchange rates, and your records will be easier to understand.

So unless you have a particular reason to use USD, keep all your records in AED.

16

Have you read and understood the topic “Importing of goods”, if not please do so as the advice / suggestions you are advocating are misleading, deceptive, unhelpful and in fact bad accounting.

At no time has it ever been suggested that you enter different currencies within the one invoice.

[quote=“dcVest, post:15, topic:10646”]
As a work-around, . . . . . I think there is a better suggestion: [/quote]

NO workaround or better suggestions are required if one understands and follows the simple basics.

In closing, there are hundreds of Manager users doing importation and none of them require your solutions.

17

And I did not suggest it either. siyab asked “How can I add AED amount to a USD Purchase Invoice”. I answered “Manager will not allow you to enter different currencies on an invoice”, and “the Chinese supplier is set-up as USD, so you must enter all amounts as USD”. That is pretty clear.

siyab asked how to do something that can not be done in Mangaer (put an AED cost on a USD invoice). I told him how to do it and called it a workaround. I understand if you don’t like that word, but what I told siyad is the same thing you told jakekm in the linked post: “Now convert that balance to EURO using the same exchange rate as used for the Suppliers Invoice.”

I think there is a better solution than the post for which you provided the link. Please see my next post.

18

I read it carefully and understand the process, but disagree with what is recommended. The same can be accomplished in a simpler manner.

You have jacekm setup a base currency, enter foreign exchanges, set foreign currency for suppliers, and convert costs incurred in his country and paid for using local currency into Euro denomination. None of that is necessary to achieve what jacekm wanted or what siyab wants. Maybe I am wrong, but I will explain my logic so that you can point out where I err.

Point 1 is that incorrect wording is used when jakekm and siyab say that they paid for a purchase in USD or Euro. In fact both paid for their purchases in local currency. They do state clearly that they paid for the foreign purchases from a local currency bank account. The bank did send the money to their suppliers as foreign currency, but that is a service provided by the bank. I know it is common to say “I paid in Euros”, but it is not precise in these examples.

Point 2. Both jackem and siyab know all their costs in local currency. For the Suppliers that are out of country, the banks, when they post the transaction, post them in the local currency. (You do point out in the linked post that there may be a timing issue that would require an adjustment, but that is true no matter how the invoice is prepared).

Given those points, and in the context of producing a Purchase Invoice that lists all costs for an Inventory Item, the easiest method is to record everything on a Purchase Invoice that uses the base currency. Even you say at the beginning of the linked post, “Possibly the simplest way would be only to take up the transactions when the money leaves your bank account so all amounts are in ZAR”. That is all that I suggested to siyab (perhaps poorly). I stated, “Now you can put all the costs on the one invoice in AED.”

Here is a purchase invoice for siyab’s example using the method you recommend in the linked post:

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And here is a purchase invoice as I suggested siyab make it. Notice there is no base currency so no “AED” all over the place, no exchange rates need to be entered into Manager, the Supplliers are not set to a currency, and the amounts on the purchase invoice are the same as would appear on the bank statement. This purchase invoice produces the same Inventory Item cost as the above, but is easier to do and understand. I think this is a preferrable way.
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19

@dcVest - thank you for your detailed response however your initial post usage of terminology and process was confusing and was not “pretty clear” to the reader. But somewhat clarified later.

If I can give an illustration
a) (yours) Q - “How can I add AED amount to a USD Purchase Invoice”. A - “The problem is, if you want to use the method that @Brucanna described, but Manager will not allow you to enter different currencies on an invoice.” (a point which you disproved yourself in later comments)

b) (mine) Q - “How can I add AED amount to a USD Purchase Invoice”. A - “If you want to use the method that @Brucanna described, then Manager will only allow this if you convert the AED amounts into USD and enter them as extra lines along with a contra clearing entry.”

  1. Workaround - I have no problem with that word and have provided many a solution based on it, however your initial usage implies that you were creating an alternate non-standard approach, but your later expanded response illustrates that you were merely quoting, albeit poorly, the universally accepted approach as stated in the topic “Importing of Goods”.

  2. To state that saying “they paid in” is incorrect wording is wrong. What currency did the Supplier get paid in ? The supplier wasn’t paid in the base currency - this is the internationally universally accepted terminology - reference is in terms of the supplier.

Your assumption that “it is not precise” becomes illogical if the bank is given two sources* to make up the Suppliers payment. Are you going to refer to this then as “I paid in source A + source B” (I paid in AED + EURO)

  • In every day life the sources could be:
    Bank account A + Bank account B
    Currency A + Currency B
    Credit card A + Credit card B
    Parents funds + Wife funds
    or any other source combination (I paid in Parents funds + credit card - the supplier doesn’t care)

As to your worked examples - they both have validity but their usage depends on the business needs. For one offs, imports rarely or cash basis accounting businesses then perhaps the base currency but for higher volumes or more complex situations (more then 2 suppliers and/or currencies) then definitely the usage of supplier currencies - mainly because the transactions should be recorded based on their original documentation, not recorded based on some conversion assumptions.

A supplier is always going to talk in terms of their documentation not in terms of your internal recording.

Can I suggest that it is better to reference or re-quote other topics - as you have done to create clarity in your later posts - rather then re-write other topics as your interruptions of them - that way things don’t get taken out of context, especially when giving guidance (not opinions) on a process with the complexity of importing. My perception is that you don’t actually use importing processes yourself.

Finally, I would not refer to either method as being more simplistic, both have their complications

20

Thanks @Brucanna for the putting so much time into responding. It would be interesting to debate and clarify some points that you made, but those are more about accounting than using Manager. (@Tut will be telling me that this is not an accounting forum :wink:) The topic has been badly diverted, so I will bow out.