We send publishers PR gifts, I just started a new job. Here are my challenges in accounting The warehouse issues invoices at full price for Public Relation Gifts that are at no charge. And I am now trying to figure out how to fix this. I can apply payments to them in the amount of 0 and write off the entire amount into deduction - PR expense. So there is nothing in Accounts receivables but how do I deal with inflated sales because of these invoices. Thank you in advance
How do I invoice for PR gift
Answers
One way to go about it (depending on your processes and set-up)....
Set-up the following:
1. A "customer" account for HR, Marketing or any other company dept.
2. A pricing structure for said departments....ie, $ 0 selling price
3. Depending on your process, warehouse can even charge directly to the appropriate expense/s. Or you can move this from the Accounting side when you review the "company customer" account/s.
Inventory is updated, detail (number) of items as gifts is recorded, overall sales is not inflated, you do not have to go through the extra step of "applying" payments (again, depending on your processes)
One commentary though....Why is your warehouse DECIDING or IN CONTROL of the selling price? Warehouse should just be the executor of sales orders (aside from inventory management/safekeeping) that already contains the selling price.
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As a P.S. or clarification,
1. From an internal control standpoint, your warehouse should NOT be issuing out invoices. They should be issuing out packing slips. At the very least, they can print the invoices and attach the packing slips with the shipment, but they should not be originating it. The preferred process is that the invoice is originated by another division/dept and sent out through other channels (ie., email or separate mailing)
2. My initial recommendation is just a tweak (band-aid) on the process (my inference/guess) but does NOT really address your problem which is #1.
Not sure what your ERP system is, but as these don't look like sales (are they samples or promotional giveaways), you should not use order management processes to pick/pack/ship the items. Can you do a stock issue and expense it?
I would reverse the sales transactions (Dr Sales. Cr AR) and reclassify the COGS to PR expense.
I don't know if it's similar, but we sometimes offer samples of our products at no charge. We used to have one "customer" account for these, but it was determined to create one customer account for each company where the sample was sent. By running it through the normal billing channels, It is easier to track to whom samples are sent, and the inventory is automatically updated as the sample is "invoiced" at no charge. The COGS is hit, but we count is as a cost as these customers often come back to buy. When they do come back, their account is already set up, the salespeople know what they received, and the salespeople know not to give away the farm as it hits their sales reports that determine commission.
Since the sale was already executed, you have:
Sales, credit amt = x
A/R, debit amt = x
Inventory, credit amt = y
COGS, debit amt = y
When you clear the A/R (credit for "x"), debit Sales for "x" (instead of bad debt)
Clear the COGS with a credit for "y", and debit "Gifts" or "Promo"
Now your books are right.
Emerson makes a good point regarding the warehouse. It certainly looks like your process is "broken" because your company (whichever department) should not be issuing invoices at full price for PR gifts.
You have an immediate issue and larger process issue. The solutions to both of these (to Len's point) depend the functionality of the ERP/Accounting system that you are using.
For the immediate issue, you certainly need to credit the invoices raised and then write off the "cost" the items of the PR gifts to PR or promotion costs.
As far as the process is concerned, I suggest find out how your ERP manages PR gifts and implement whatever functionality is offers.