hello,
if i include subcontract labor amount in production order which we paid in cash
should i re enter it in cash transaction?
the charges you enter in the production order is to calculate the cost of the inventory.
the payment for labor should be entered as a bank or cash transaction whichever is applicable.
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The full trail of transactions in a situation like this can be a little bit hard to understand. The non-inventory costs on the production order are credits to whichever account is selected for them. If that account is an expense account, they reduce the balance of the account because they are, in effect, transfers of value into the business (the work performed by the subcontractor).
When the subcontractor is paid, your cash account is credited and the same account where the production order non-inventory cost was allocated is debited. This offsets the credit from the production order. At first, this might seem contradictory, because the subcontract expense account will now have a net zero balance for the work. But the value is still represented on your books in the asset account, Inventory on hand, which increased because of the production order’s subcontract labor. The value of that labor resides in Inventory on hand until the manufactured inventory item is sold, when it is transferred to the expense account, Inventory - cost.
The key to understanding all this is to realize that the subcontract cost is not an expense of your business, and therefore should not permanently remain in your expense accounts. Instead, it is part of the cost of goods, which does not become an expense until the inventory is sold. Until then, it is an asset.
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