Account allocation in invoicing

Question

Hi I have been asked to help a friend reconcile her dads bank accounts for their electrical business. I have noticed that in their invoices to customers, they have applied all materials used in the job to an income account 4-2000. They have called it Stock income.  Am I incorrect in thinking this should be a COS or expense account? Are they reporting extra income earned by using an income account in their invoices?

Thanks in advance

Mike_James · Answer

Hi @JackieDep , thinking of a business which sells labour and materials, both of these line types would be allocated to an income account on the sales invoice, so what's been done in the file seems right to me.

If the item is inventoried, then behind the scenes AccountRight will transfer the cost of materials from the inventory (asset) account, to the cost of sales account. You can see the complete transaction journal by opening the invoice and select Edit, Recap transaction.

SamaraM · Answer

Hi @JackieDep

Thank you for your post. I would agree with you that generally an income account would not be used to track materials.

Here is a very brief outline of the account types that are typically used with materials and inventory:

Account type to use for tracking the costs of producing or purchasing this item - Cost of Sales Account

Account type to use for recording income from the sale of this item - Income Account for Tracking Sales

Account type to use for recording the on-hand value of this item - Expense Account for Tracking Costs

Account type to use for tracking the costs of purchasing this item - Asset Account for Item Inventory

However each business is individual and without knowing all the veriables I am not sure if this would cause reporting extra income.

I recommend seeking an accountant if you are concerned for more specific advice and wish you luck in helping your friend.

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