I am working for a small energy trading company and in our line of business, it is common to have something called “natural loss of goods” which means that if you sold 10 tons of product to a customer and they paid you in advance, they are going to receive, for example, 9.6 tons of product due to the said natural loss during transportation. Hence, the overpaid amount stays on the customer’s account and when the next order is placed by that customer, they are going to pay: “new invoice amount” - “previously overpaid amount”.
In short, amounts invoiced and amounts paid are always different, but Manager always makes up additional payments (that I can’t manually delete) to balance the account.
I would be grateful if someone could provide me with an algorithm to properly record such transactions. Thank you.
Yes, that’s correct.
I forgot to mention that I have imported a bank statement, so whenever I make an invoice to reflect previous receipts from a customer, Manager automatically assigns receipts from the imported transactions (sometimes splits them into smaller amounts to balance the invoice).
The app behaves the same with purchase invoices from suppliers since the same principle of natural losses applies.
I am not sure whether by the time I am done creating all the invoices its going to just work out and show all the correct amounts but would be glad to get reassured by someone who’s had this issue before. Thank you again.
You will have to issue a credit note to your customer for the difference between the invoiced amount and the delivered amount. The amounts you have invoiced are incorrect. Once you create the credit note, this will adjust the balance of the account to zero.
Would it not be simpler to invoice the customer after the delivery when you know the exact amount delivered?
You could always send him a proforma invoice with an indicative amount that he has to pay in advance but at least then you would not have to issue the credit note.
As for you purchases, you will need to correct them with a debit note which ideally should be issued by your supplier. How do they correct their invoices?
If you are accounting for inventory quantities on your end, you would write off the transportation losses as a non-revenue reduction of inventory. See this Guide: Write off inventory | Manager.
If you need documentation prior to delivery in order to obtain the deposit, issue a sales quote instead of a sales invoice. Retitle the sales quote as a pro forma invoice. The quote will have no financial impact, but will give the customer something to use within their system. Issue the sales invoice only after the delivered quantity is known.
Method 2
Issue a sales invoice at the beginning for the ordered quantity.
When the delivered quantity is known, issue a credit note for the amount of the transportation loss. This will credit the customer’s subaccount in Accounts receivable for the amount not delivered, which will automatically be applied to the next sales invoice. See this Guide: Use credit notes for customer returns and refunds | Manager.
EDIT: @Joe91 and I basically posted the same information. Our posts crossed. There is one small correction to @Joe91’s post that needs to be made. He said, “Once you create the credit note, this will adjust the balance of the account to zero.” The credit note will adjust the balance of the customer’s account to what is owed for the quantity actually delivered. A receipt for payment by the customer is required is reduce the balance to zero.
Thank you for such a prompt response.
I will definitely look into this, though written off inventory goes into the expense account and distorts the information in the reports, right? since that is not an actual expense and is borne not by me but the company I bought the product from (the producer) and the same principle applies to my relationship with that producer.
Thank you!
I am not sure how the supplier corrects their invoices but they probably use a sophisticated accounting software and have an accounting dept to do it.
Appreciate the help.
You do not need to use inventory write-offs if your supplier is invoicing you for the same quantity that you are invoicing your customer?
In fact, this raises the question are you actually holding inventory at all - if you do not actually have a physical stock of material, why even bother with tracking inventory
I have been thinking about that myself, but since I’m not really good at accounting I was wondering whether that’s the right way of doing it.
I do not actually hold inventory, so if you could just walk me through and explain how to record everything correctly without having any stock on my books I would be extremely grateful.
I am wondering whether I could overcome this problem without issuing a debit note for a supplier.
For example, in this case, I have paid the supplier $580,000 but only received goods worth $531,217.50 and need the rest to be added to my next payment to that supplier, but that does not happen automatically. My next payment is seen by Manager as a separate transaction and I am not sure how to link the two.
In case if it’s just not possible and I am still going to have to key in the full amount (580k) and issue a debit note, pls let me know. Thank you.
If you enter or leave your purchase invoice at 580,000 this is an error in your accounts. You purchased 531,217 worth of goods - you can NOT add 580,000 to your purchases.
You have now overstated your costs by 50,000 and reduced your profits by the same amount. This is definitely incorrect accounting.
I suggest you have a talk with an accountant and then come back here
I do not know why you are introducing debit notes to this discussion. Debit notes are how you enter credit notes from your supplier. You do not initiate debit notes on your own.
When creating your payment, do not assign the purchase invoice number. Manager will automatically carry the excess payment forward and apply it to the next purchase invoice you create for that supplier. The reason it now shows as OVERPAID is because you told the program to apply the entire payment to that purchase invoice, even though the invoice was for less than you paid.
But, like @Joe91, I wonder why you paid more than you owed.
I think he pays in advance, similar to how his customers operate, without knowing what the final delivery will be.
Obviously, his supplier has to adjust the invoice in his books too, so there must be a supplier credit note around somewhere which should be entered as a debit note.
I think he should treat the original invoice as a proforma invoice and not enter it all and wait until he gets the purchase invoice with the correct amount
But i suppose the correct treatment depends on the actual contract between he and his customers and he and his suppliers
