I struggle a bit here. If someone can guide me to the best process, I would appreciate this.
We have a small service/repair operation in one company. The key spareparts are set up in the inventory ledger as per normal.
Now when a service work is performed, certain spare parets may be used in that service order.
As I can see, there are two way to 'deduct inventory":
By “Production Order”
By “Inventory Write-Off”
In the first case, the “spare part inventory” is assume to go into an “assembly”, which then is a new inventory item. There seems to be no way using “Production Order” to book these against an Expense Account.
So I guess, the best way would be to use “Inventory Write Off” aand book this againste an expense (or direct cost" account for example called “Service Consumables”. This basically works, however it is not very easy to track this as you cannot “View” a “Inventory Write off” entry, thus you cannot see the totaal cost for the various spareparts used in one transaction. Also, when looking into the “Service Consumables” account, the “Describtion Field” is tken from the “main subject” of the “Inventory Write Off”, there is no way here to see what spare parts were used…
I feel like I’m missing something obvious… Can someone help clarify…
For Example, a good solution would be if there was a “Service Order” transaction, similar to the “Production order” but with the difference that bill of material items are not booked against a compond inventory item but rather against a service order, which may be booked as an expense (if under warranty or similar contract) or direct cost (if the service is charged directly to the customer)
you can issue an invoice with 100% discount applied for service claims under warranty. but it would be advisable to consult regarding the legal possibilities of this in your country.
Yes, you could have a Customer call Warranty Claims and you would list the spare parts used with quantity values only, no pricing. This will transfer the spare parts cost to the P&L
Do you get reimbursed from manufacturer / distributor for the warranty work ?
Production orders cannot be used in your situation for either paid or warranty service. Production orders are for manufacturing a new inventory item from existing inventory items (A + B + C = D).
A production order can, however, be used for repairs of items remaining in stock. So if a customer exchanged a defective item for a new one, you could record the exchange according to this Guide: Manager Cloud. Then, you could repair the defective item you have returned to inventory following this Guide: Manager Cloud.
But when you perform a repair and the customer keeps the original item, you do not have the repaired item in inventory when finished. So you have two options:
The first option is to issue either a sales invoice (as @sharpdrivetek suggested) or a cash receipt. List repair parts consumed and any labor costs. Inventory items will automatically be posted to Inventory - sales and labor can be posted to a Service sales account. If the repair is a free warranty repair, you can discount all costs to zero. If you want to keep track of warranty repair costs, rather than discounting the repair part and service labor line items, add another line item allocated to an expense account, Warranty repairs, and enter a negative amount sufficient to zero the invoice/receipt. (You must first create the Warranty repairs account, of course.) This approach keeps the process nearly identical for all repair services, with only the addition of the discount line when the repair is under a warranty. In that situation, the repair income for both parts and labor will be offset by the warranty repair expense. You will need to check whether local tax law requires tax to be assessed on free repairs. If so, apply the tax code(s) to parts and labor and include the tax amount in your discount line. This will transfer the burden of the tax to you, so you are paying tax for your customer.
The second option, usable only for warranty repairs, is to create an inventory write-off, since this is a non-revenue reduction of inventory. Allocate the write-off to Warranty repairs expense account. The disadvantages of this approach are that (a) you must write off each part individually, (b) you cannot add service labor costs, and (c ) procedures will be different for regular and warranty repair services, and (d) transactions to the Warranty repairs account will not collect costs of repairing an item into a single transaction.
@Brucanna posted the question about reimbursement from manufacturers/distributors just as I was finishing my response. If you are reimbursed, option #1 is the way to go, but without the discounts. Instead, you would make the manufacturer/distributor the customer and charge them for the repair labor and parts.