One of my clients is in the construction trade. Whereabouts in the nominal ledger do I open a new account for tools bought ie. saws etc. Is it a direct expense?
I personally, would be inclined to expense small hand tools in the direct cost (69xx), as it is a cost associated with the service provided in construction (with out the saw he can't construct).
If it was say, a paper guilotine, used in his home office, then I would put it in the normal expenses range.
That's just how I would do it. Others may do it all as expenses, in the 7xxx range
Have to disagree on it being a direct cost, I'm afraid.
If he had to buy a specific tool in order to do a specific job (in other words, he could not do that job without THAT tool) it would be a direct cost. However, if he uses the tools across the broad range of jobs I would not say it was a direct cost.
I, as an example, need to use paper to print out accounts. I post that to stationery. If I needed a particular quality or colour paper because it was requested by the client that would be a direct cost.
I would post the cost of small tools to Repairs and Renewals myself.
Just to confuse things a little more - Sage's default chart of accounts for builders, although not a given, puts small tools in the cost of sales range at 5008.
__________________
Tony
Responses are intended as outline only. Formal advice should be sort from your Institutes Technical Department or a suitably qualified Accountant.
I understand your point about different types of paper, and agree that it probably should be. In fact I have realised I don't do that myself, and should (I use 80gsm multipurpose for everyday office stuff but better quality 100gsm for client Reports and final accounts)
I would still disagree that an expensed small tool is an administrative expense, whether it is for a specific job, or used over several jobs, it is still required in the performance of the service. I cannot think of a tool a tradesman would buy, that wasn't used to carry out his trade, and complete a job. If on the other hand a spanner was specifically purchased to assemble the office desk, then that would be an admin expense.
In theory, it could be argued that they are assets, if they last more than a year, and I know some craftsmen, that have tools that they have had for years. i know one carpenter who can make a pencil last 5 years!!
I did say that others may expense hand tools, and I have seen several tradesmans accounts where this is done, I personally see it as a direct cost.
Tony - seems strange to put small tools in 5008 cost of sale, as that is normally reserved for purchases, where the ownership changes hands but hey ho there are always several ways to do the same thing in bookkeeping.
Tony - seems strange to put small tools in 5008 cost of sale, as that is normally reserved for purchases, where the ownership changes hands but hey ho there are always several ways to do the same thing in bookkeeping.
Hi Bill.
I was just throwing it into the debate really. Personally I treat small tools as a Direct Expense. My logic being that it contributes to the creation of the sale rather than directly being part of it. e.g bricks or cement.
I also agree that strictly speaking it's an asset but because it's immaterial (awful pun) it's a waste of time capitalising it.
I'd also personally avoid repair and renewals because that means I'd have to copy the receipts for the Accountant
__________________
Tony
Responses are intended as outline only. Formal advice should be sort from your Institutes Technical Department or a suitably qualified Accountant.
I agree with your logic. Your point about Sage default nominal being 5008 for construction trades puzzles me but, again it is how someone at Sage has interpreted the treatment of small/ hand tools.
I also agree that materiality is taken into account in these situations, particularly in the case of builders, where it is most likely that hand tools wont last very long, and are almost consumable purchases (saws wear out, trowels get lost, and screwdrivers get used as levers, or chisels!!!). Maybe that's why Sage treat them as a purchase?
'Aint this great, I see that 5000 range as being for different kinds of purchases, particularly purchases for resale, whereas the 6000 for direct cost - wages for people making the goods, tools to make them with (obviously with large machinery capitalised), marketing, etc the 7000 for overheads inc salaries for non direct workers and the 8000 for non-allowable for tax items.
