Invoices

[Geert Janssens]

(For your information, IIRC is an abbreviation that is often used in email for 
"If I Remember Correctly", it has got nothing to do with accounting)

If you want to deal properly with materials bought and resold, you require an 
inventory system. This is something that GnuCash doesn't have. You can book 
these things manually as well though, but this requires a little more 
attention.

Note that I am not an accountant, so I may be off mark here and there. And 
secondly, I'm no native English speaker, so I may be using the wrong 
accounting terms. If so someone hopefully corrects me.

Anyway, the general principle should be something like this:

Firstly, items bought to be resold later on (either unchanged or part of a 
product) are considered an asset, not an expense.

So when booking a Vendor's bill for these items, you should use an asset 
account to transfer to. You can call it inventory or whatever, sometimes stock 
is used as well but that is confusing with "stock" in the context of "stock 
markets".

Next, when you sell the item, you will probably sell for a higher price to 
make some profit on it. Suppose the item cost you 50 EUR, and you sell it for 
75 EUR (ignoring taxes to keep things simple). From an accounting perspective 
selling the item means a 50 EUR decrease in your inventory account and 25 EUR 
in profits.

So when you create your customer's invoice, you should charge 50 EUR to your 
inventory account and 25 EUR to an income account, for example realized gains. 
There's no need to use negative signs in this transaction, GnuCash handles it 
properly.

I hope this helps.

Geert

On Friday 18 December 2009, BGP wrote:
> Maf. King wrote:
> > On Thursday 17 December 2009 22:23:21 BGP wrote:
> >> I probably don't understand how to create an invoice properly
> >> but....here's what I've done-
> >>
> >> I create an Invoice that includes the hours I've worked and the amount
> >> per hour.  That works fine.
> >>
> >> Then I include the material charges for the work done.  The material
> >> charges are entered in the description area.  But, I can't include
> >> Expense accounts in the invoice.  So, I put the a MINUS sign next to the
> >> material charges and it all works out well.
> >>
> >> Is that the way to do it or is there another way?
> >
> > Hi BGP,
> >
> > I think that you are wrong to be trying to use an expense account for
> > materials in an invoice. Surely a -ve line total reduces the invoice
> > total?
>
> "expense account"  I probably should've said Income account as that's
> the line I enter my labor costs on in the invoice.  There are no other
> choices I can make for the invoice.
>
>
>  I'm probably doing the wrong thing but the results work out well.  I'm
> probably making a mess for myself that'll appear in the future if I
> don't do it correctly now.
>
> > It sounds to me that you are trying to "reduce" your expense account
> > totals by selling materials on, and that is Not The Way To Do It.
> > You buy stuff. You sell it on.
>
> "sell it on"....what does that mean?
>
> > Taxable Profit = Total Income - Total Expenses
> > (simplistically, at least).  Your way sounds like you aren't selling
> > materials, but actually reclaiming expenses, and that doesn't really
> > belong on an invoice.
>
> Expenses are part of any job.  You buy material for a job and that
> becomes part of the cost you have to get paid for along with your labor.
>
> > I don't charge materials on in my business so I'm hazy on the exact
> > details here, but IIRC you may need a COGS (cost of goods sold) account
> > which balances transfers between Income:Sales, Assets:Stock-In-Hand, and
> > the relevant Expense accounts.
>
> IIRC....what's that?  Do you mean IRS or Title 26?
>
> > Hopefully others will be able to chime in with some insight!
>
> I hope they do as I have no idea what you're talking about.
>
>
>
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