I'm sure this is completely straightforward but I can't seem to get my head around this. I have a client who owns some forestry and sometimes sells wood which has been treated with chemicals (as apposed to just firewood).
In Sage nominal ledger Where would I put a) the chemicals and b) if he sends it to another firm to actually supply the chemicals and coat the wood ? I want to put it in 'purchases' but feel its more likely direct expenses?
I think for (a) Purchases (5xxx range) is fine, as it goes into a finished product that is resold. For (b) again 5xxx range, as the whole subcontract work is a cost absorbed (literally) into the finished product. It is also an external purchase, rather than an internal process
For analysis, I would be inclined to use 5000 for direct purchases, and either rename 5001, or create a new code in the range for the subcontract.
The reason I would keep them both in 5xxx, is because if you seperated the subcontract work, it would distort the cost of the actual physical components of the finished product. Internal costs like direct labour etc. are taken care of in the direct expenses.
You do have the added complication that the cost of growing the wood are also direct costs, and any purchases that are directly attributed to the growing of the trees should probabaly also be put down as Purchases e.g costs of seed/ sapling, fertiliser etc.
However, having given my opinion, this is one of those questions that can have more than one answer.
