This article will look at the JC journals created by when using perpetual inventory. Note this will also depend on the accounts that items are linked to and the GL control accounts that have been set-up in the database.
The following journal is created when an item from stock on hand is added to the job.
Stock is moved from Stock on Hand and into WIP
When the item is invoiced from the job the following entry is created.
Stock is moved from WIP and post to cost of goods in the P&L
Recoverable Labour Costs
Recoverable refers to non stock costs that are incurred on a job and will be charged out to the customer. Recoverable costs are therefore included in your WIP total in the Balance Sheet.
When setting up your labour costs you need to determine if the cost is recoverable or not. If the labour cost is recoverable you need to make sure that the following flags are set.
Depending on how your JC module has been set-up you will also need to ensure that your labour recovery rate is set accordingly. Either Last, Average or Standard cost prices need to be set.
You will also need to confirm the GL accounts set against each labour code, the purchases account would typically be set to your Labour recovery account. However, it is highly recommended that the accounts to be used for recoverable labour are confirmed with your accountant.
The following journal entry is created when recoverable labour is added to a job.
The cost is moved from your labour recovery account and into your WIP account.
The following journal entry is created when recoverable labour is invoiced from the job.
This recovery cost is moved out of the WIP account and taken up in Cost of Goods in the P&L.
Non - Recoverable Labour Costs
Non-recoverable refers to non stock costs that are overheads on a job and will not be charged charged to the customer. Non-recoverable costs are therefore excluded from your WIP total in the Balance Sheet.
Non-recoverable labour costs are lookup items however they are not flagged as recoverable.
Non-recoverable labour costs and other lookup stock codes do not create a journal entry when the code is added to a job, this is because lookup items do not post a cost of goods entry to the GL.
You will notice that lookup items that are not flagged as recoverable also only have 2 ledger posting accounts assigned to them. Whereas recoverable lookup items will have 3.