Internal Accounting, Example Promotional Stock

Summary

This article shows an example of how to deal with promotional stock that is given away for sales prospecting purposes.

The Philosophy Behind Catalyst Internal Accounts

Move stock internally between departments, attributing the Cost against a department and the flexibility to show an internal profit, if required.

Details

In this example we are going to give away some promotional stock to the value of £100.00 showing no profit on the internal movement, thus charging the movement at cost.

System Goals for the movement of stock

• Reduced the stock quantity when an item is given to a potential customer.
• Show the cost of this against the Clothing & Merchandising dept.

Set-up

• Create sales ledger account called "Internal Promotional Sales" "INT001"
• Make the account VAT exempt
• Make the Centre Modifier ""I"", this means...

When the invoice is produced the sales centre will be the default centre stamped onto the stock code, group or the if they are not filled in, the stock parameters. In this example we shall use centre 100, Parts Sales Retail that assigns to nominal centres "11100" Parts Sales Retail that was stamped onto the stock code.

When the month end updates the nominal, the system looks at the centre modifier and if it is filled in, then checks it's parameters for how to proceed with the update. Because the concept of the centre modifier is that if you flag it with "I" then we require the nominal code it updates to be an internal nominal centre, not retail. So in this example the system would add the letter "I" into the sixth position of the nominal code, therefore updating centre "11100I" Parts Sales Internal

• Make the account group "INT"
• Create a profit & loss nominal centre, cost of sales, called Promotional Cost of Sales and assign this to the default payment centre of the sales

ledger account.

   Centre 12200 Promotional Cost of Sales.    

• Change the CASH SALES flag to "NO" if you want accounts department to clear the debtor and the end of the month or YES if you would like the account to be cleared at the point the invoice is created.

The Process

• Using Stock Control, Point of Sale, Invoice the item of stock to the customer against sales ledger account "INT001"
• If the CASH SALES flag is NO then the accounts department should clear the debtor as part of their month end procedure.

Accounting Entries

Sales Ledger Invoice

CR  11100I     Parts Sales Internal          -100.00
DB  Z994       Debtors                        100.00

Sales Ledger Receipt

CR  Z994       Debtors                       -100.00
DB  12200      Promotional Cost of Sales      100.00

Stock Movement

CR  Z922       Stock Value                   -100.00
DB  11200I     Parts Sales Internal COS       100.00

SALES
   11100I                          100.00     Parts Sales Internal

COS                            ==========
   11200I                         -100.00     Parts COS Internal
   12200                          -100.00     Promotional Cost of  Sales
                               ==========
NETT LOSS                         -100.00

SUMMARY

The above results in a loss on the profit and loss for the promotional cost of sale because, Parts Sales Int and Parts COS Int should be contra'd off.

If the nominal codes are coded appropriately (by department) producing management accounts based in excel to show it more effectively, can be achieved.