Accounting entries created by the Production system
There can be various possible scenarios in the event of invoicing a client. The following are the scenarios and the subsequent entries that would be updated---
Scenario 1 – What are the entries made when a client is invoiced without cost?
•Client A/C DR Income A/C CR
Scenario 2 - What are the entries made when the job has a cost/PO and supplier invoice is not received as yet or received but not entered on the system at the time of invoicing the client?
•Client A/C DR Income A/C CR
•Cost A/C DR (cost taken from the PO) WIP A/C CR (cost taken from the PO)
Once you enter the supplier invoice details on the PO, it becomes a PI, and the following entries are created by NEOSYS
•WIP A/C DR (with the original cost – reversed) Cost A/C CR (with the original cost – reversed)
•Cost A/C DR (with the new/original cost) Supplier A/C CR (with the new/original cost)
Note- The second scenario is the most common scenario and NEOSYS recommends the client to follow this as a rule.
Scenario 3 – What are the entries made when Supplier invoice is received before the client is invoiced?
•WIP A/C DR Supplier A/C CR
The following entries are then created when you invoice the client
•Client A/C DR Income A/C CR
•Cost A/C DR (cost taken from the PI) WIP A/C CR (this entry nullifies the DR made to WIP)
Scenario 4 - What are the entries made when a client is not billed and the supplier is to be paid?
Note: happens when client refuses the final product, due to your mistake, and you have to pay the supplier. Also happens when you pitch for jobs and there is no income.
•Cost A/C DR Supplier A/C CR
Scenario 5 - What are the entries created when modifications are made to the P/O before the supplier invoice is received?
This is when the job has been billed to the client. Creation and modifications to PO before the job has been billed cause no accounting entries at all.
Note : The previous entries made would be cancelled first before making the new entries.
•WIP A/C DR (with the original cost reversed) Cost A/C CR (with the original cost reversed)
•Cost A/C DR (cost taken from new PO) WIP A/C CR (cost taken from new PO)
Scenario 6 - What are the entries made when a purchase order is cancelled?
This is when the job has been billed to the client. Creation and modifications to PO before the job has been billed cause no accounting entries at all.
•WIP A/C DR Cost A/C CR
Scenario 7 - What are the entries made when the client is invoiced without any cost, and the cost is later added?
•Client A/C Dr Income A/C Cr
When the cost is added (i.e. PO is made):
•WIP A/c Cr (cost taken from the PO) Cost A/c Dr (cost taken from the PO)
When the PO is converted to a PI:
•WIP A/C Dr (with the original cost – reversed) Cost A/C Cr (with the original cost – reversed)
•Cost A/C Dr (with the new/original cost) Supplier A/C Cr (with the new/original cost)
Scenario 8 - What are the entries made when the purchase invoice arrives different from the purchase order and after the job has been billed?
At the date of the purchase invoice NOT at the date of the purchase order or job period or the date of the invoice to the client.
•WIP A/C Dr (with the PO provisional cost – reversed) Cost A/C Cr (with the PO provisional cost – reversed)
•Cost A/C Dr (with the actual PI cost) Supplier A/C Cr (with the actual PI cost)
The net effect on cost is that the cost is amended by the descrepancy between the purchase order and the purchase invoice IN THE MONTH OF THE PURCHASE INVOICE.
