Hi I am a new member here and I have a question and would appreciate if you could help me.
My client is cleaning company with two people on payroll only and these people are directors and cleaners same time so my question is am I right treating their wages as Labour (Cost of Sales) or shall I classify them as mere Wages/Salaries (and treat it as Expense)? From what I have studied on AAT courses I think I am right but what is your opinion?
I am sure that others may have alternate views but I always treat the salaries of working directors as an expense.
My reasoning is that the expense would have been incurred regardless of what the director was doing so even though they may have been working on a project the cost of their time was sunk anyway.
Of course there is an equal and opposit arguement that if all of the directors time is spent on revenue generating activities then it is a cost of sale.
I have yet to come accross a director who is able to spend all of their time on revenue generating activities.
The key is that you have a justifiable reason for how that you classify an expense and you apply such consistently within the business.
kindest regards,
Shaun.
p.s. got your offline message but I only tend to go off site with replies where a site member feels that they have been threatened or mistreated in some way. For everything else we always publish the answers on site for the benefit and further discussion of the whole community... I suspect that my response to this one may cause some further discussion as it may be a divisive answer.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I agree with Shaun. For wages to be a cost of sale, put simply for example - the item being sold could not be produced with the wage being incurred (just as the item being sold could not be produced without the raw materials being bought), as opposed to other staff/Directors who may have a hand in the item being made but also undertake other tasks.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
