Internal Sale

(Point of Sale Capture of Job Cost Transactions)

Select the Internal Sale Check List to go directly to a "bare-bones" configuration and setup outline.  It is recommended that the new user begin with reading the Introduction and Step by Step Process starting just below.  However, the Check List will benefit those users interested in quickly verifying that their POS and Active Accounting systems are configured properly for the Internal Sale.

Introduction

Problem:

You are a multiple division company. You have a Landscape Department, a Nursery Department, a Retail Department and a Landscape Maintenance Department. The landscape division takes a lot of material that is in the Nursery Inventory and uses it on jobs. They are supposed to provide a list of all materials taken and be “billed” at a slight profit for the nursery because they carry the product. This creates a storm of paper and the accounting of the purchases is delayed and lax. The Landscape division may not know what the real profit is on a job and the nursery department is never sure where inventory went.

Facts:

1. All material has a bar code or an item number bar coded on the tag.

2. Point of sale is installed in the nursery.

3. POS is easily accessible during landscape loading for jobs.

4. There is a strong management desire in the nursery to more accurately capture the use of the material.

5. Landscape management is equally desirous of knowing their costs.

Solution:

Use Point of Sale to record the “internal sale” of materials to a job.

It could be accomplished with the existing point of sale system but a “payment” would have to be entered to remove the invoice that would be created in POS. This process would have to be done at least monthly. Although the length of time it would take is not much, the accounting personnel have enough to do in the spring. The POS register can create a different sale type called an internal sale. The Internal Sale has several properties that make it work.

1. A different sale type can be specified in the control file for this type of sale. This is important because POS Posting must route the sale to a different set of GL accounts.

2. The invoice is put into sales analysis for tracking of sales to landscape but the invoice never hits the open invoice file and the balance is not put on account. This allows for complete accounting of the transaction while making it easy to implement.

3. A job cost transaction is created at the "Landscape Price" for that item.

Landscape Division Costs:

Presumably the landscape division price is slightly higher than the nursery cost. This allows the nursery to be compensated for carrying the item and having it available for the landscape department. It also gives the landscape division a known cost of materials taken from the nursery. They would not be affected by cost fluctuations during the year because they have a price level in the inventory. Materials used on the job that do not come from the nursery will be keyed through normal job costing transaction entry with an alternate cost or an Inventory Issue to the job would go against inventory specific to the landscape division and not one of the nursery divisions items.

Step by Step Process

Step 1: The POS Sale to the Landscape Division

The POS control file offers two sale types.  As shown in fig 1 the POS Sale Type is "1" and the Internal Sale Type is "Q".  Internal Sale is checked in order to be active.

POS Control Information fig. 1

The landscape division will have to have a Customer Number with a special Price Level defined in the inventory. If tracking of the material by foreman is important the individual foremen could be customers too with the Nursery as the Bill To customer record. This is easier if you have employee cards with bar codes on them.

When recording a POS sale, start by placing a check mark in the Internal Sale check box as shown in fig 2.  Key in a Job Number for this transaction. The job number is not edited at point of sale and is put into costing exactly as keyed. If the job number does not exist in costing, it will be created automatically as a job from point of sale without a customer number. The default Job Type is used as the Job Type on the automatically created job. If incorrect it will have to be changed using Job Cost Transaction F/M Change mode.

POS Sales Entry Form Fig. 2

Scan the items like you would for a normal sale. The price charged will be that customers price level. Record the sale and apply a house charge for the payment type.

POS Sales Entry Form Fig. 3

Attach the invoice to the estimate work order, turn it into accounting and you now have a complete trail for these transactions.

Step 2 POS Posting:

Because POS allows for the second sale type to be created, in this case "Q", the normal inventory Sales, Asset, and/or Cost of Goods accounts can be switched.  You can differentiate Internal Sale transactions from say, the 'typical' POS sale in this manner.

Sale Type Modification fig 4

This is an example:

   Sale account      Inventory Asset     Cost of Goods

Normal Sale (P type)                      300                   (Blank)                   415

(Not shown in Payment Types)

Sale type Q                                  370                   (Blank)                   420

(Shown in Control File)                                  

Account 370 is a sale account for Nursery to Landscape Sales. The Blank in the asset sale override means that the default Inventory Asset Account (140) shown in fig 5 is credited. 420 is an account called Cost of Goods Nursery to Landscape. This overrides the inventory default. This allows ledger to show profitability of the sales to the landscape division by the nursery.

System Control Information fig 5

The rest of the ledger accounts are defined in the control file under the accounts receivable tab and the job cost tab. If there is a work in process account the Accounts Receivable Account (105.00) entry is offset with the Work in Process account (160). If the job does not exist one will automatically be created with the default job type.

System Control Information fig 6

Taxable customers cause the tax to be reversed from the POS register because the tax is not due until it is billed to the end customer. This means your sales tax payable amount will not match to the sales tax in sales analysis. For simplicity this customer should be non taxable.

The detailed general ledger posting description that follows gets very ugly and is great therapy for insomniacs but if your company wants to operate in this way it is important to understand what the software will do in conjunction with job cost billing.

The GL Posting for this POS transaction is:

The use of work in process makes this the merging of normal job cost transactions and POS transactions clear. If there is no WIP account the asset account must be the A/R account for POS transactions and the normal asset accounts for JC transactions. This conflict would then make it difficult to track. Attention: Use work in process accounting if you intend to use the POS internal sale process.

Step 3 Bill the Job:

This costing transaction was created automatically from the POS internal sale process.

JC Transaction F/M Change Mode fig 7

Select the Job Cost Billing option create an invoice.

JC Billing F/M Add Mode fig 8

When the invoice is posted the job cost transactions will be posted to ledger and the landscape division sales, receivables and expense account transactions will be created automatically.

System Control Information fig 9

The GL Posting for this costing invoice are:

The number of ledger transactions generated per line of POS receipt is at least five. The number of entries into ledger is large but complete, able to be tracked, secure and audit able. The amount of work necessary to execute this process is minimal and there are significant time savings on the entry of job cost transactions

Improved Internal Sale

(Create an Internal Sale without affecting Income)

Introduction

The above discussion on POS makes it possible to use very simple programs and create complex ledger transactions automatically. This multiplies the capabilities of your Active Applications. In the previous example we let the system remove the receivable from the system without a payment. That had the effect of increasing profit without any real income to justify it. The amount of the sale was transferred to an asset account called Work In Process. It increased sales by the amount of the internal sale while increasing expenses by the cost of those sales. You have realized a profit in the Nursery division but in actuality there is no real profit generated. Or you are overstating your income by the amount of the difference between the landscape price and the nursery cost. Unless the landscape billing occurs promptly that will affect your income incorrectly.

The affect of this transaction may not be long lasting but it is there. The method discussed now explains how to eliminate the affect on your company income statement and still provide the nursery income from the internal sale.

Like the previous example it is complicated but the benefits are worth it.

Step by Step Process

Step 1: Create two new General Ledger Accounts and a Payment Type

Begin by adding a Sales account to the chart of accounts and an Asset account to hold the value of the Internal Sale until the Landscape Division “pays” for it. For my example I will use sales account 375, Internal Sale Offset and asset account 165, Work in Process Offset. Second, create a payment type (tender type) named Internal Sale. Use the sales account as the cash account.

 Payment Type Modification fig 10

And in POS create the same Payment type.

POS Control Information fig 11

Also in the control file add the Internal Sale offset to the Job Costing chart of accounts.

System Control Information fig 12

The sale is recorded normally.

POS Sales Entry Form fig 13

Except when payment is clicked, select the Internal Sale payment type.

POS Sales Entry Form fig 14

This creates the sale with the new payment type.

Post the POS to AA and post the ledger AR transactions. The entries will be made in a slightly different manner.

The GL Posting for this POS transaction is:

Notice that the net affect of this is to have a debit and a credit to sales of equal amount. You have not increased the sales of the company because the accounts now offset one another.

The posting of the landscape sale would result in the same entries as described above.

You have also increased and decreased the internal sale asset accounts by equal amounts. You have also reduced your inventory and taken the expense in the nursery for the material that the landscape division is carrying on their books at a higher value.

The draw back to this method is that you must at some point eliminate the balance in the Internal Sale Offset Account (375) and Work in Process Offset (165) accounts. Both accounts will carry balance contrary to the normal balance in this type of account. If balances are left in these accounts it means that the landscape division has not “paid” for the materials it sold.

There are many ways to resolve these accounts. The Nursery could “bill” the Landscape Division and the Landscape division “pay” the bill. The amount of the invoice would be the balance in the accounts. The item sold to Landscape would have the Sales account number of the Internal sales offset account (375). The amount of the sale is the amount in the offset sales account.  Other entries would have to be made to clear the asset holding account.

Another method is to journal entry the Sales account and Asset account. You would Credit the Sales and Debit the Internal Sale Asset by equal amounts. This method would be simple and generate fewer ledger transactions. It would have the same result.

Internal Sale Configuration and Setup Check List

(for users already familiar with the Internal Sale concept as described above)

Setting up for the Internal Sale:

1. Create a Sales Type for the Internal Sale in the Main system and specify a Nursery to Landscape Division Sales Account within that Sales Type.  Entering Asset and COGS account numbers is optional.

2. Enter the Internal Sale Type Code into the POS Control file/POS Defaults tab.

3. On the POS Defaults form find and place a Check mark in the Internal Sale Active check box.

4. Within the Main Control File/Job Cost defaults tab, enter the Work In Process (W.I.P.) GL Account number in the column by that name, in both the Green Goods and Hard Goods rows, in all Job Types that may later be assigned to a Job File involved in an Internal Sale.  Select Update to insure the changes to your Job Type(s) are ‘saved’.

Ringing up a Nursery to Landscape Division Sale (transfer) at the POS System:

1. Have previously created the Job File (Job #) to which the Internal Sale is associated.

2. Select the Landscape Division as the Customer.

3. Place a check mark in the Internal Sale check box.

4. Key-in the Job Number that relates to this Internal Sale.

5. Add in the Items to transferred and then select Customer Charge payment type.

Additional Set Up Required for using the optional "Account Types as Sales Types" Feature:

1. Create desired Account Types to be assigned to various Customers within the Main Control File/Customer defaults tab.

2. Create identical Account Type Codes in the POS Control File/Customer defaults tab.

3. Place check mark in the Account Types as Sales Types check box in the POS Control File/Customer defaults tab.

4. Open the Landscape Division Customer record and assign them an Account Type Code identical to the Internal Sale Type Code.

5. Ring up an Internal Sale in the regular fashion.

Set Up Instructions for using the “Improved Internal Sale”:

1. Create a GL Account for the purpose of offsetting the Nursery to Landscape Division Sales GL Account.

2. Create a new Payment Type named, Internal Sale and assign this new sales offset account to it.

3. Create an identical Payment Type in the POS Control File/Payment Types default tab.

4. Create a new Offset to Work in Process GL Account for the purpose of offsetting the Work In Process GL Account.

5. Within the Main Control File/Job Costing defaults tab, key in this offset to Work in Process GL account number into all Job Types that will be associated to Internal Sales.  Specifically in the "Asset Accts" column, and “Other” row, in the accounts grid box.

6. Ring up an Internal Sale in the usual fashion and your GL posting report will reflect an additional pair of offsetting transactions created.

7. When the Job is billed to the end Customer, create a pair of entries to offset these two offset accounts.

End of Internal Sale Topic Overview