What are the implications of selling a unit at zero cost?
Contents
Summary
This article explains the effect on your management accounts, VAT and reports if a unit is sold with no cost (purchase) price set and how to prevent it.
More Information
When selling a unit the cost of the unit is very important for 3 main reasons:
1. If the unit is being sold on the margin scheme, the VAT is calculated on the profit rather than the sale price. If the cost has not been completed at time of invoice the VAT will be incorrect and therefore will incorrectly report the VAT due to HMRC.
2. Profit reports will show the cost per the unit at time of printing the report. If no cost has been completed you will show 100% profit on the sale. This is unlikely to be correct or in any way accurate.
3. Management reports i.e. your Profit & Loss, will show an inflated Gross Profit if no cost has been posted to the Profit and Loss.
To counteract this Platinum has a user security setting to prevent users invoicing a deal if any unit being sold on the deal has no cost price set. At point of creating an order or quotation the user will be warned of any units with no cost price set but will be allowed to continue with the order or quotation. However they will not be able to produce the final invoice.
You may wish to enable a manager to have the option to invoice at zero cost so they can override the system and produce the invoice. However you should be aware of the points listed above to ensure you understand the effects of invoicing out at zero cost.
User Security
To enable a user to invoice at zero cost go to " Reports & Settings Maintenance Options System Administrator Add or Edit Users".
- Enter the name of the user you want and select [Search].
- Select [Edit].
- Select the [Permissions] tab.
- Click into the screen and scroll down to the setting "Invoice at zero cost".
- Click [Edit] and change the option to 'Yes'.
- Click [OK] then click [Done] and [Accept] the changes.
Correcting Units sold at Zero Cost
If you do find a unit has been sold at zero cost please be aware of the following before making any changes to the unit record:
1. If a unit has been sold on the margin scheme, resulting in an incorrect VAT amount, you will need to credit the deal and re-invoice it once the cost price has been entered. Amending the cost of the unit after the invoice has been accepted will not recalculate the VAT on the original invoice.
2. Profit reports are based on the information on the unit at the time of producing the report. Entering a cost price and reprinting the report will produce updated figures.
3. If your system has Automatic Cost of Sales enabled, entering a cost price after a unit has been sold will result in a posting to the Profit & Loss for the newly entered cost price. This posting will be on the date you are logged in to Platinum so may be in a later period than the period in which the unit was sold.
 | Please ensure your Platinum system is up to date to ensure you have the settings described above. |
See also
- Creating a new unit
- Creating a used unit
- Selling a unit
- Nominal Postings
- User Security
- Downloading a Platinum update
VS01
