I have a dilemma to sort out I need some help with this
Please tell me how to provide an multiple level order to our non current assets
Let me explain
We are dealing with big corporate companies and receive from them capital orders those are usually for few hundred thousand now the order it self from our client should become a Non current asset correct? and than when we are invoicing the client for specific deliveries on that order we would create a partial invoice for that specify order. now my problem is how to create this in Manager.
From the legal point of view this is correct, our contract normally provides that if the order is placed and the work have started than the client is liable for the incurred costs, so we need to track those costs. Please advise what is the best solution for it.
I have a dilemma to sort out I need some help with this
The capital order is a basis for establishing a contract, not necessarily for establishing an accounting transaction.
It is not normal to take up a contract obligation as an accounting transaction. To do as you suggest (non current asset) would mean that that an order for 200,000 would also increase your sales by 200,000 as that is the double entry, even though no expenses have been occurred.
The partial invoice (assuming that the order had been taken up as a Non current asset) would be allocated to the Non current asset account as the sales value had already been taken up.
Yes, for the costs Incurred in performing the contract, not the Sales value of the contract.
Then create a Work-in-progress account, as you spend the money allocate the costs to that account. As “normal” invoices are created then create a Journal to transfer the Work-in-progress to the P&L.
Good Day @Brucanna I agree with all you have said but there is another portion to add to this cattle
I have spoken to the bank and we want to bring the performance bonds to it as well.
1.the client creates an order
2. the banks (Clients and our) create the performance bond
3. we claim based on them 40% of the total value of the project (since the performence bonds are signed for the whole project)
4. we deliver the 1st part and create an invoice for the full amount of part one
5. we start with part 2 create an invoice and so on.
we can claim any further part of the total order up to a value of 80% of the total project.
the remaining 20% (less costs of the setting of performance bonds) is payed after final delivery
that’s why I was thinking of bringing the project (capital) order to the books and as we receive the money and or create Invoices for the specific parts we take the portions from the Non current assets and move them to sales
I hope this will clarify my problem
To clarify - does this mean that you receive the 40% without having issued an Invoice.
If yes, does that mean . . . .
That this invoice is fully paid when created.
If yes to the above, then isn’t the performance bond draw down nothing more a project advance/deposit
Yes you could say so, it would be like the kind of advance payment towards the final project, but for the other part of the bank to understand that we have to include this somewhere in our management account. You probably know how is the corporate world that one hand does not know what the other is doing. So on department will create an bond and the other will advance on that bond, but that must show on our management account statement. That’s why I’m trying to figure out where to put this in to the software
Ok so you need this reporting requirement for external reasons rather then internal management reasons, is this correct.
Also, at what point do you want to recognise the sales under the P&L
Yes I need it for the bank, also the sales will be recognized after I create the invoice for the part of the project done.
So coming back to the problem we have
possibility another invoice
than would be another Payment
and final invoice
you see based on the performance bonds we as a company are obligated to deliver toward the project in the specific time. So is our customer to pay in specific time. the banks are merely a vehicles for the transactions and insurance as well as helping with the cash-flow.
based on those obligations bank will provide financial advance
Forgot to ask, do you want the expenses to go straight to the P&L or have them stored and then transferred to the P&L to match the sales Invoice creation.
Once this is known, later today I will draft a suggested solution.
Good day @Brucanna I think this would be the best way to deal with it since the expenses will become a stock item, and from those they will be assemblies which we will deliver as separate parts of the project.
Let me bring you even more to the project site itself
the project will have few stages
- finalizing the design (at that point we will test our design or create new parts which we do not have, but only on the small scale. This is a prototype usually small which the client will not even see. We might even buy some software to test or to program with and as such this will become a fixed asset)
- at the same time we will purchase other parts which will become assemblies for the project and normally there is a waiting period for the delivery of those parts in a region of 4-6 weeks
- we will start manufacturing of enclosures where the purchased parts will be fitted in
- we will (after delivery) start populating the enclosures with the equipment we have ordered
- after finalizing and testing the prototype order the correct size equipment and start building the enclosures in the same way as the parts which we already know.
- another team would start site preparation like welding and cables and pipe installation by the customer
- we would deliver the manufactured goods to site
- we would install those products on our customer site
9 we would commission the final installation on customer premises and hand over
that’s what happens from the project site.
I hope this even more provides view to the complexity
Ok, I think the best approach is to separate the Bank accounting from the “normal” accounting as to amalgamate the two creates conflicts with processing.
Step 1 - Taking up the Sales Order - Bank Accounting
The Sales Order is the forerunner to the Sales Invoice. Sales are Income which are credits therefore the Sales Order revenue side would be a BS Liability account called “Un-invoiced Orders”.
To create the double entry, the contra would be a BS Asset account called “Orders in Progress”. Both of these BS accounts would be current, rather then non-current as they probably relate to within 12 months. The Sales Order would be taken via a Journal.
As “Sales Invoices” are issued (say 50,000) you would reverse via a Journal a matching amount so the balances on the BS accounts would become 150,000.
Step 2 - Performance bonds draw down - normal accounting
With advances/deposits you have two options a) Receive Money to the clients Accounts Receivable sub account or b) Receive Money to a BS Project Advances account’
Sample of processing a)
Sample of processing b)
On creating the Sales Invoice, (a) would show up as Invoice paid whereas (b) would require an additional line entry.
Sample of Invoice (a)
Sample of Invoice (b)
Step 3 - Expenses - normal accounting
It appears that these can include various inputs such as potential fixed assets, inventory items and direct costs relating to installation and commissioning. With regards to the direct costs these can either be immediately expensed or posted to a BS Asset account called Projects in Progress and then transferred to the P&L via Journal in association with the Sales Invoice.
Step 4 - Creating the Invoice - normal accounting
This aspect you probably have under control - it appears that it would contain free form commentary relating to the order plus inventory movements.
The above is a simplistic layout based on a single or maybe a couple of projects running simultaneously, however if the volume of projects is larger then greater management clarity can be obtained by setting up the Orders in Progress, Projects in Progress and Un-invoiced Orders accounts as Custom Control Accounts and then use the Special Accounts tab for Project specific accounts under each of those control accounts.
Could you please explain a little more how to do it???
Found it sorry