Keeping the numbers straight
The explanation is kept
(relatively) simple by omitting choices that
may be made in some steps. It is too
simple to be representative of most
businesses. Specific situations will
require some different choices.
Price of materials,
when sold to Mfg,
must be the same as the average-based value removed from inventory. The sale document may be prepared with the
report in view. Alternatively, the
item entry may be edited, to insert the current average cost as the selling price. This requires discipline. After each purchase into inventory, the selling price must checked and adjusted if the average price has changed.
With all your care, the
Mfg income and expense accounts may show a
balance of a few cents. The valuation
report shows average prices rounded to the
nearest cent, and these will be multiplied by
the count on the sale document. The
inventory value reductions are calculated
using prices including fractions of a
cent. The actual expensed amount is
based on this price, and is visible in the
account register. Knowing that the income account balance is merely a rounding error, an adjusting journal entry can be made, bringing it to zero.
would be used for continued manufacturing of the same (or similar) products. For instance, the materials for a product could be called out on a memorized cash sale. The memorized form will probably be for one unit, and the numbers multiplied when the transaction is recorded. That is fine, as long as each unit requirement is multiplied by the same lot count. If you have a stockroom, parts could be issued based on the quantities shown on the sales form.
The above procedure
implies that sales documents are written when
material comes out of the stockroom, labor is
added later as it is accumulated.
Product valuation depends on use of a special
extract of the SalesbyCustomer report.
is an industry term referring to recording material and labor usage only when the build process of a product is completed. It applies best when production is repetitive and well defined, build times are short, and control of material is not a significant problem. Materials can be stored on the manufacturing floor and used as needed.
Cash sale forms can be generated from m
emorized transactions, which would
serve as a standard material list for each
product, and include the necessary labor
entries. Where standards are not
applicable, labor and material usage can be
recorded outside of QuickBooks and entered
As products are completed, a single
processes all material and labor. The total cost on this document represents the value of the finished product. Using this total, the product is immediately put into inventory using
WriteChecks, bringing the WIP Bank
balance back to zero. Any non-zero balance in the
account will indicate an error in matching material costs.
Back flush does not give
visibility of work-in-process. The
taking of physical inventory counts will be
complicated by the fact that on-hand
quantities may include material already built
into unfinished products. The relative
simplicity of this approach can, however,
compensate for the relaxed inventory control.
will generally show a balance, if back flush is not used. Manufacturing will usually be continuous. Work will always be in process, on several products, with a value showing in that account. When a balance sheet is generated, this amount would appear in a somewhat strange location, with the bank accounts. Using a check or a journal entry, you can move this value into an Other Asset account called
Work in Process. After printing
the balance sheet this entry can be
deleted. Either location on the balance
sheet shows the correct net assets for the
company, but the Other Asset location is more
is described as being transferred from payroll to manufacturing at the time each lot is finished. This action can be deferred. At the end of an accounting period, a
Transaction Detail by Account
report can be run to compare the Mfg Labor accounts. Any excess of Income over Cost represents the amount of labor that has moved into Inventory since the last Journal Entry adjustment. This cost should be transferred prior to running the P&L. If amounts for each lot are desired, the Sales by Customer report filtered on Customer:Job name will identify manufacturing work.