Accounting entries created by the Production system
Handling different scenarios of invoicing
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.
Handling receipt of purchase invoice (against purchase order) after invoicing the client
In addition to the notes above, you need to take understand the various scenarios in handling the receipts of purchase invoice against purchase orders after invoicing the client with reference to date of receipt.
Scenario 1 - What are the entries created when the purchase invoice is to be recorded after the invoice month?
Eg. Purchase invoice is recorded on 05/11/2008 and the client was invoiced on 05/10/2008:
Scenario 2 - What are the entries created when the purchase invoice is to be recorded before the invoice month?
Eg. Purchase invoice is recorded on 05/09/2008 and the client was invoiced on 05/10/2008:
Scenario 3 - What are the entries created when the purchase invoice is slightly more than the purchase order (after invoicing the client)?
Eg. Purchase order was for 5000 AED, but the Purchase invoice was received for 5500 AED:
Scenario 4 - What are the entries created when the purchase invoice is slightly less than the purchase order (after invoicing the client)?
Eg. Purchase order was for 5000 AED, but the Purchase invoice was received for 4500 AED:
Handling of PO / PI which have current, future or past dates
Scenario: Job created in 2/2009 Estimate raised on 4/2/2009 for 1000 AED PO raised on 4/2/2009 for 900 AED Invoice issued on 4/2/2009
Journal entry created upon client invoicing:
Period: 2/2009 Date: 4/2/2009 Client A/c Dr Income A/c Cr Cost A/c Dr WIP A/c Cr
NOTE: The period/date of the journal which is automatically created incase of client invoicing will depend on the date you input on the New Invoice selection screen – the estimate in this case will not overrule the invoice date you put on the invoice screen.
Journal entry created upon updating the PO with order date 4/2/2009 (current date) – in Purchase Invoice Journal
Period: 2/2009 Date: 4/2/2009 WIP A/c Dr - reversal entry Cost A/c Cr Cost A/c Dr - actual entry WIP A/c Cr
Journal entry created upon updating the PO with order date 4/3/2009 (future date) – in Purchase Invoice Journal
Period: 2/2009 Date: 4/2/2009 - reversal entry WIP A/c Dr Cost A/c Cr Period 3/2009 Date: 4/3/2009 - actual entry Cost A/c Dr WIP A/c Cr
Journal entry created upon updating the PO with order date 4/1/2009 (past date) – in Purchase Invoice Journal
Period: 2/2009 Date: 4/2/2009 - reversal entry WIP A/c Dr Cost A/c Cr Period 1/2009 Date: 4/1/2009 - actual entry Cost A/c Dr WIP A/c Cr
Journal entry created upon converting the PO to a PI with order date 4/2/2009 and PI date 4/2/2009 (current date) – in Purchase Invoice Journal
Period: 2/2009 Date: 4/2/2009 WIP A/c Dr - reversal entry Cost A/c Cr Cost A/c Dr - actual entry Supplier A/c Cr
Journal entry created upon converting the PO to a PI with order date 4/2/2009 (current) and PI date 4/1/2009 (past date) – in Purchase Invoice Journal
Period: 1/2009 Date: 4/1/2009 WIP A/c Dr - reversal entry Cost A/c Cr Cost A/c Dr - actual entry Supplier A/c Cr
Journal entry created upon converting the PO to a PI with order date 4/3/2009 (future) and PI date 4/3/2009 (future date) – in Purchase Invoice Journal
Period: 3/2009 Date: 4/3/2009 WIP A/c Dr - reversal entry Cost A/c Cr Cost A/c Dr - actual entry Supplier A/c Cr
NOTE: The period/date of the journal which is automatically created incase of conversion from PO to PI always will depend on the supplier invoice date you input – the PO date has no effect in this case and can be anything.
