I would set up the packaging company as a supplier then post as per number '2' in your question. I would really only use the first option if you had a one off purchase from someone. Keying it as a supplier helps you track what you spend with a particular supplier and also what is owing so its more accurate/useful.
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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
That depends on whether you have posted the invoice to a supplier's account. If you have, do 2 (because the other side of the invoice will have been to the expense code and the payment needs to clear the liability in the supplier's account). If you haven't, do 1.
Does that make sense?
Regards,
P.S. I see Joanne's better reply beat me to it!
-- Edited by bro0010 on Wednesday 17th of September 2014 10:38:08 AM
Your question is basically whether packaging is an expense or a cost of sale and that very much depends on whether the packaging is part of the cost directly attributable to what is being sold or an overhead such as packaging on promotional gifts which would be an advertising expense.
As a general rule though unless there is a situation where there is a strong arguement against the packaging being part of the cost of the product then it should be considered as a cost of sale (Option (2)).
kind regards,
Shaun.
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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.
Ok thanks. There are no invoices from the suppliers because they are paid immediately so nothing outstanding. I guess that means I should post to expenses then?
Tut, are you peeps just sitting there waiting for someone to post a question.
I was just happy to see a question that wasn't someone tearing their hair out with Sage... Maybe thats why we all jumped on this one.
Three answers in nine mins.... Is this a record!
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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.
Ok thanks. There are no invoices from the suppliers because they are paid immediately so nothing outstanding. I guess that means I should post to expenses then?
Nope
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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.
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.
just read your answer and I'm afraid that I have to disagree in this instance as if the invoice had not been posted to suppliers (per Jo's post) then unless this was for something such as advertising packaging the original invoice must have been misposted so the issue would be with a misposted invoice rather than the payment needing to fit with where the invoice had been posted to (if that makes any sense).
kindest regards,
Shaun.
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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 think maybe I misread the question. I interpreted it as "does a payment for any sort of P&L item get coded to the P&L code or to the supplier's account in the purchase ledger control account". I intended to convey the same sentiment as Joanne. Perhaps I messed it up.
Regards,
-- Edited by bro0010 on Wednesday 17th of September 2014 11:33:14 AM
i have posted no purchase invoices at all for any packaging supplies, just assuming that i could simply pay to expenses as though I had paid directly at a post office and been given a receipt. is this the wrong way and do i need to be posting purchase invoices to suppliers and then paying them off?
A receipt in itself does not make something an expense rather than a cost of sale, its what the expenditure is for that matters.
For example. You can buy a computer in PC world and you get a receipt but no invoice. That does not make it an expense rather than an Asset.
I think however we may be talking slightly at cross purposes as my answer relates to packaging materials. i.e. you make something, you put it in a box which is part of the cost of the product.
Are you mixing up postage with packaging? Can you tell us exactly what this expenditure relates to.
Shaun.
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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.
We buy stock, and then sell it again. Each item sold must be packaged by us before collection by the courier. The packaging materials include things like bubble wrap, cardboard boxes, cellotape, padded envelopes, address labels etc
So really postage rather than packaging as such which is a different scenario.
Now, as its directly attributable to the goods sold I would charge outwards postage as COGS rather than a general overhead however, whilst inwards freight must always be part of the cost with outwards freight you have a choice to either attribute directly (which you should do to keep management reporting meaningful) or expense as a general overhead.
Whichever option you go with for this sort of postage it must be applied consistantly.
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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.
Ok thank you. Im going to post to expenses as general overhead and let the accountant decide if they all need to go under cost of sales. We dont have many other postage costs so it wont get all mixed up.
You can still set it up as a suppliers, but set the nominal code as whatever you want.
You may for eg buy bubble wrap from one supplier and padded envelopes from another, even if you then use the same expense nominal code to allocate the cost to - by keying as suppliers you can analyse by supplier AND the total expense.
I agree with Shaun (always of course!) that this should be a direct exp in this scenario.
-- Edited by Cheshire on Friday 19th of September 2014 11:06:56 PM
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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
Oh and another thought - if you didnt set it up as a supplier and show the invoice as at the date of issuance, and the invoice doesnt get paid for a couple of months then what happens at year end if you are only posting the entry when it is paid? Your accounts are then not reflecting the expense when it is incurred.
__________________
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
