Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Chapter 12
Chapter 13
Chapter 14
Chapter 15
Chapter 16
Chapter 17
Chapter 18
Chapter 19
Chapter 20
Chapter 21
Chapter 22
Chapter 23
Chapter 24
Chapter 25
Chapter 26
Chapter 27
Chapter 28

Chapter 28

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Setting up to track manufacturing

Building blocks must be made as a foundation for manufacturing:

1.  Customer:Job names are needed to identify products being made in production lots.   The names must be easy to find in the list of customers, so starting all with Mfg may help.  They must be quite short, to be visible in the various boxes where they are entered or selected.  These names are used by the reporting system to identify product and lot and state manufacturing costs.  Setting up customer types might facilitate reporting. Details will vary with the situation. Being internal, these customers will not be taxable.  The description uses one customer called Mfg.

2.  Accounts must be set up for the process.  All of these functions are needed.  These names are used in the narrative.  Actual names are your option. 

Mfg Income is an Other Income account used to record the sale of materials and labor to the manufacturing floor.

Mfg Income:Matl is a sub-account of the above, used to record the value of piece parts or raw stock incorporated into the finished products.

Mfg Income:Labor is a sub-account, used to record the income from selling labor services to manufacturing.

Mfg Cost is an Other Expense account which records the opposing side, the cost of the material and labor utilized in manufacturing.

Mfg Cost:Matl is a sub-account of MfgCost which handles the COGS of material going into manufacturing.

Mfg Cost:Labor is a sub-account to handle the cost of labor applied to make the products.

WIP Bank is an imaginary bank account, set up so that non-existent money does not flow through the real bank account. The money in this account actually represents the value of Work in Process(WIP), which good accounting would classify as an Other Asset.  In designing this system, the bank account proved essential.  This account is in the same form as the clearing account mentioned in Chapter 5, but is used only to handle the value of WIP.  You may want to open the register for this account and click Edit|Change Account Color choosing a distinctive color.

3.  Inventory Part items for finished products, are set up like normal inventory sold to outside customers.

4.  Inventory Part items for purchased piece parts or material must be specially designated for use only in manufacturing.  The Sales Price must be set equal to the Cost.  The COGS account must be the Mfg Cost:Matl named above.  The IncomeAccount, normally used for recording sales income, is replaced with Mfg Income:Matl.  These items must not be sold directly to a real customer.  If this is needed, the simplest way is to set up a separate finished goods item and run it through the minimal system (above) to convert the inventory to something that can be sold.  These items will not be taxable.

5.ServiceItems are used to record income for the value of labor provided to manufacturing.  If the cost of products actually sold is to include labor cost, this service value must be sold to manufacturing along with the material.  Mfg Labor or a similar name will identify the Service Item used to accumulate labor and bill it to manufacturing the product. Pricing of this item may be tricky. It is intended to reflect a realistic actual labor cost to go into COGS with the product.  Employers share of Social Security and Medicare, and SUI, could be included.  Overhead or burden probably is not be appropriate.

Depending on the complexity, or simplicity, of the manufacturing process, this can be plugged in as a standard labor figure. If you are using QuickBooks Pro 5, it can even be carefully collected and posted using Timer (see Chapter 19).   

6.  A Sales Tax Item with a zero tax rate is needed, if sales tax is active.  When sales tax reports are generated, this will identify manufacturing movements as nontaxable internal transactions.  The manufacturing customers must be marked as non-taxable, and the zero-rate item noted in their records.  All material and piece part items must be marked non-taxable.

With all these pieces in place, transactions can be entered to record the movement of income and expense through manufacturing operation.


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Last modified: May 21, 2004