HOW TO SET UP INCOME /EXPENSE ACCOUNTS FOR LABOR AND PARTS ON JOBS THAT WE HAVE TO REDO DUE TO PRIOR WORK WE PREFORMED DIDNT FIX THE PROBLEM.

by WINDY
(ARKANSAS)

HELP, I AM TRYING TO SETUP ACCOUNTS FOR A HEAVY DUTY DIESEL REPAIR SERVICE. WE DO SERVICE CALLS, ROADSIDE ASSISTANCE, REPAIRS (LARGE AND SMALL) AND DOT INSPECTIONS, ETC. WHEN WE DO WORK FOR A CUSTOMER AND EITHER WE FAIL TO RESOLVE THE ISSUE OR WE SPEND TOO MANY HOURS ON THE REPAIR THAT WE CANT BILL THE CUSTOMER FOR ALL THE TIME SPENT, THEN IT RESULTS IN US HAVING TO EAT THE COST FOR THE LABOR HOURS AND/OR PARTS THAT WE HAVE TO DO AT NO CHARGE. THEREFORE, WE END UP WITH NO INCOME FOR THE JOB BUT IT ENDS UP BEING AN EXPENSE. HOW DO I BALANCE THIS OUT? I HAVE BEEN CREATING INVOICES FOR THESE SITUATIONS AND BILLING THEM ALL TO A CUSTOMER I CREATED AND NAMED WARRANTY WORK AND THEN IN THE PO/REF# SECTION ON INVOICE I NOTE THE ACTUAL CUSTOMER THAT WE PREFORMED THE WORK FOR. THEN I ENTER THE SERVICES, PARTS AND LABOR HOURS AS NEGATIVE QUANTITY OR AMOUNTS WHICH LEAVES ME WITH AN ACCT REC CUSTOMER ACCT REFLECTING NEGATIVE BALANCE THAT INCREASES WITH EVERY WARRANTY TICKET. I FEEL THAT THIS IS NOT THE RIGHT PROCEDURE TO HANDLE THIS HOWEVER THAT IS HOW IT WAS BEING DONE BY THE PAST BOOKKEEPERS.


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Hi Windy,

There's a better way to handle this situation.

I would set up a Cost of Goods Sold account, and call it 'Unbillable Labor' or something like that.

When you invoice a customer, include all your labor hours on the invoice, then deduct time that you can't bill for as 'Unbillable Labor'. This will decrease the customer's bill, and it will post as a Cost of Goods Sold item, which is like an expense.

However, if you don't want the customer to see your total hours worked and 'unbillable labor', then I'd suggest only invoicing the customer for the hours you can bill for. Then make a journal entry with a debit to 'Unbillable Labor' and a credit to 'Sales'.

Either way you do it, you're recognizing the sale for the total amount of work involved, you're recognizing an expense (Cost of Goods Sold) for the time you spent but can't bill for (which is good to track, by the way), and you are not muddying up your Accounts Receivable.

Hope this helps!

If you have more questions, just let me know.

One more thought...be sure to track that unbillable time, and find out if there's anything you can change to keep it as low as you can.

Kathy

Comments for HOW TO SET UP INCOME /EXPENSE ACCOUNTS FOR LABOR AND PARTS ON JOBS THAT WE HAVE TO REDO DUE TO PRIOR WORK WE PREFORMED DIDNT FIX THE PROBLEM.

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Sep 17, 2016
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Appreciate your advice
by: Anonymous

Thank you

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