Re: Unique Business Example

Hi Connie Webb:

I want to correct a portion of my earlier reply (see below).

> "Then when the customer returns the core, you write a journal entry 
> (or run it thru the purchase journal; there are various options here) > to 
>set the returned core up in inventory and relieve the liability 
> account for the contra amount."

When the customer returns the core, which is probably before the accounts 
receivable invoice is paid, you have to make "two entries:"

The first entry reduces the customer's receivable invoice by that portion 
related to the billing for the core.

Debit: Unrecognized Core Billings                 $XXXX

Credit: Accounts Receivable - Customer           ($XXXX)

Than you make a second "memo" JE (or possibly record this memo entry thru your 
purchases journal) to record the purchase of the core at "no cost."

Debit: Purchases of cores                        No cost

Credit: Accounts Payable - Misc. Customers      (No cost)

Finally when the customer pays the unpaid porton of the receivable invoice, you 
record this payment is the ususal way.

I hope these entries clarify things for you and I'm very sorry if a portion of 
my original reply was a bit confusing.

Regards....

------My Original ML Reply Message------

>From: "aldg" <aldg@mail.rvi.net>
>Reply-To: MAPICS-L@midrange.com
>Date: Tue,  7 Aug 2001 11:53:28 -0700

>Hi Connie Webb:
>
>> "...invoicing for the core puts money on the books..."
>
>and
>
>> "BOTTOM LINE - Overstating sales until credit is issued for returned > core."
>
>
>Actually using the accrual basis of accounting, invoicing a customer "does not 
>create any money" on the books.  It creates a receivable, which must be paid 
>by the customer first to generate any cash for the company.  
>
>Next, my suggestion for handling the cores is to bill the customer for the 
>core but instead of recording 'Core" sales, credit a balance sheet liability 
>account called something like "Unrecognized Core Billings."
>
>Then when the customer returns the core, you write a journal entry (or run it 
>thru the purchase journal; there are various options here) to set the returned 
>core up in inventory and relieve the liability account for the contra amount.
>
>As a result, there really isn't any "overstated sales" at all because a sale 
>for the core was never recorded using the above procedures.
>
>> "Any innovative suggestions to control business requirement with these
>> conditions:"
>
>My suggestions aren't really innovative, just regular accrual basis accounting 
>rules and procedures.
>
>If you have any additional questions, please post it thru the Mapics ML.
>
>Regards....
>
------End of my Original ML Reply Message------


--
Above message before copy enclosure (if any) was sent by:

Al Gershen
Grants Pass, OR 97526 
aldg@mail.rvi.net
& ICQ # 12342782

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