How do I create a warranty account?

Summary

The following article explains the preferred method for setting up a Warranty Account.

This article is to be followed on the basis that you are raising an internal invoice without VAT. The Credit Note you receive from your Warranty Supplier should be posted onto the Purchase Ledger as usual. The VAT on the Credit Note will be included in your VAT return.

More Information

• Go to " Sales Ledger Customer File Maintenance Add or Edit Customers".
• At "Search on", type the word 'Warranty' and press <F6> to create a new account.

Details

• Fill out all the relevant contact details for the warranty account.

Invoicing

• Click the [Invoicing] tab.

"Centre Modifier"

Type 'W' and press <Enter>. Press <Enter> on the warning message that is displayed.

"V.A.T. rate"

Select 'VAT Rate 3- Exempt'.

"Payment Centre"

At the "Payment Centre" enter '75001'. This should be the 'Warranty Control' centre. If this centre doesn't exist, contact your Accounts Department and ask that they create this Nominal Centre as a Balance Sheet - Asset/Liability centre.

When posting the Credit Note onto the Purchase Ledger you should use Purchase Centre '750' which links to '75001' and provides the contra between the claim and the credit note received. See How do I deal with workshop warranty payments?.

"Cash Sale"

You may choose to set this to 'Yes' to ensure warranty work is paid off to the warranty control account as soon as it has been invoiced. Alternatively you may choose to set this to 'No'. When you receive the warranty credit you should use Sales Ledger Receipts to pay the invoice to warranty control. Any balance left e.g. due to the credit note being less than the amount claimed, should be paid off to a Profit & Loss - Warranty Loss/Gain Nominal Centre.

"Internal"

Set this to 'Yes' (Transactions to internal accounts are considered "Outside the Scope" for V.A.T. purposes and will not appear on your VAT100 report). You will account for the V.A.T. when you receive the credit note from your warranty supplier.

Groups/Analysis

• Click [Groups/Analysis] tab.

"Group:"

Type 'WAR'. Once again, this will aid you for reporting purposes.

Stock

You may wish to charge all Stock sold to this Warranty Account at cost, if so:

• Click the [Stock] tab.
• Click into the "Price code" field.
• Press <Shift+F5>.
• If no matching items are found click [OK].
• Click [Add].
• Click the drop down alongside "Account" and select 'Group' to set up pricing for all accounts in the 'WAR' account group (see previous section) or leave the field set to this account only.

It is recommended you apply pricing to a group of accounts rather than individual accounts. When adding a new account simply by assigning it to the same group will ensure the pricing structure is applied. This is a useful feature for Warranty and Internal accounts and makes applying future changes quicker and easier.

• Enter 'WAR' as the "Account: Group".
• Click the drop down alongside "Stock" and select 'All'.
• Leave "Subgroup" set to 'None'.
• At "Description" enter a suitable comment e.g. 'Warranty Account at Cost'.
• Choose "Pricing method" - 'Cost price'.
• Then select the relevant method e.g. 'First In First Out'.

FIFO is the most common method used.

• You would not usually enter a "Markup" for warranty accounts.
• Click [Done] and [Accept].
• Press <Esc> twice to return to the account set up.

Workshop

• Finally, click the <Workshop> tab.

"Labour Rate:"

Enter in the default Labour Rate for Warranty work for this account.

Click [Done] and [Accept] to complete the warranty account creation.

If you receive payment from your Warranty Supplier or you choose to post the Credit Note onto the Purchase Ledger without VAT then please make sure that you leave the "VAT Rate" set to 'No Default' and the "Internal?" flag set to 'No'. This will ensure the Warranty Invoice has VAT applied and will be included in your VAT return.

See also

• Creating workshop jobs
• How do I create an internal account?
• How do I add parts to a workshop job?
• How do I deal with workshop warranty payments?

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Keywords AND Misspellings

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