Question
Should a transaction be entered into Quickbooks as an invoice as soon as:
1) contract is signed,
2) money is deposited, or
3) cabinets are complete?
Which is correct to keep an accurate profit loss statement in Quickbooks? We may have a contract 1-3 months prior to construction. And can it be posted as a sale without being an invoice?
Forum Responses
(Business and Management Forum)
From contributor W:
When we take a deposit, we make an invoice with two entries:
Retainers
Undeposited Funds
When the job is complete, our invoice has sales and an application of the retainer to sales:
An invoice is issued only when there is a transfer of ownership of goods. Neither signing a contract nor a deposit accomplishes that.
Likewise, expenses are not recognized at the time a check is written, but at the consumption of the inputs, whatever they may be; this is called the accrual form of accounting. The exception to all this is if you operate on a cash basis.
Some, although not many, also recognized a portion of their profit while the product is being produced. This is usually done as a means to reprice Work In Progress Inventory to a replacement value and taking the difference as a manufacturing profit or loss.
Revenue is recorded when an invoice is issued, not income. Revenue is the price of goods and services.
Income = price less cost.
I would likely vary my answer to you depending on your size and the requirements of your banker if you are comfortable with your controls.
What I like to help set up in hardwood processing plants is a mechanism to: 1.) figure what it costs to run the cell, and the next cell, and the next cell, etc., 2.) attribute those costs to the inventory as they occur, 3.) relieve the inventory of those costs at the time of shipment to clear the Cost of Goods Sold (COGS).
In this manner, running the plant and processing lumber into parts is relatively profit neutral (unless you have a bad load that you can not claim, a major snafu, or conversely if you have extraordinarily good yield). The vast majority of income or profit occurs at the time of shipping/invoicing.
For example:
When purchasing inputs
Inventory 5000
The production recovery encapsulates your conversion at the cell level and provides a benchmark to measure how efficiently the cell is producing a product based on the power, payroll, overhead and anything else that may go into the cell.
Any which way you choose to do it, you will more than likely find inventory to be the issue. If you can quantify what the inventory is worth all through the process, you can take a snapshot of your profit all through the process.
You may choose to log progress invoices, and this is again your choice. The other avenue is to record "work in progress" to keep your books looking a little more real at month end.
The above posts are all acceptable. Your accountant should tell you to pick a generally accepted system and keep with it. You should choose your system with your accountant.
I think I got your second question straight and the answer is sort of no. You can create the invoice, but if you post it, the sale will be recorded. You can record a Sales Order in QB (some versions) and it is not posted as a sale until you convert it to an invoice. You can also create the invoice and under edit, mark it as "pending" so it does not post to the sales and receivables accounts.
This will show up in reports under sales - pending sales, and can be opened and under edit, marked as final.
If you have a version of QB that gives you sales orders, I would probably elect that route and use them to track your WIP to level out the statements. You just need a realistic and simple method of determining where you are in the project(s) and adjust your WIP up or down to suit.
