DBD: Order Processing - Internal Expense Procedure
DBD: Order Processing - Internal Expense Procedure For Distributor Use
🔵 Overview Procedure for ordering and expensing items for internal/distributor use, either through a purchase from a vendor or by using general inventory already in stock.
Step-by-Step: Purchasing Items for Internal Use
- Setup the distributor as a customer; you may want to set yourself up as a counted forms management customer.
- Setup the items that you will be ordering in the item master. Enter in a cost but keep a zero sell. (You can also enter these "on the fly" in Order Entry as needed.)
- Enter the orders through Order Entry. Just enter general shipping instructions. Do not ship the inventory into your 9001 warehouses.
- Receive the merchandise through P/O Receiving. Proceed into Accounts Payable Invoice entry. The GL distribution will post the General Ledger to your WIP account if you are using Work in Process. If your company does not utilize Work in Process, then you will need to change the GL at this point to reflect the appropriate expense account (i.e. Office Expenses).
- Proceed to Accounts Receivable Invoicing. Add the invoice number, and then at the invoice lines, add a special line. On the special line put in a product code that matches what you are ordering. Description could read (adjust sales analysis for Distributor Cost of Goods). DO NOT enter a sell price on this line. Enter a negative cost for the entire cost of the forms. Regarding the invoice totals, verify that the invoice is zero, with a zero cost and zero gross profit. (For companies using Work in Process, at the GL distribution, you will select the line that is posting to Cost of Sales and change this to reflect the appropriate Expense account.)
💡 Additional Note: Based on the use tax laws for your state, if you need to record the use tax on these items, you can add the following entries here. Credit your Use Tax Payable and debit the expense account.
Use of General Inventory for Distributor Use
If you'd rather use general inventory already in stock instead of ordering new items, use this alternate procedure:
- Enter a warehouse release for goods to be used by the company you have set up for yourself. Be sure to zero out the sell price.
- Proceed to A/R and follow the same basic instruction from step 5 above. This time, when you get to the G/L distribution, change the distribution from the cost of sales account to your expense account.
💡 Additional Note: Based on the use tax laws for your state, if you need to record the use tax on these items, you can add the following entries here. Credit your Use Tax Payable and debit the expense account.
Frequently Asked Questions
Q: How do I set up to order items for internal/distributor use?
A: Set up the distributor as a customer, set up the items in the item master with a cost but zero sell, then enter the order through Order Entry with general shipping instructions — without shipping into your 9001 warehouses.
Q: How does the GL distribution work when receiving these items?
A: It posts to your WIP account if you use Work in Process. If you don't use Work in Process, you'll need to change the GL to the appropriate expense account (e.g., Office Expenses) at that point.
Q: What do I enter on the special invoice line to zero out the invoice?
A: A product code matching what you ordered, no sell price, and a negative cost equal to the entire cost of the forms — the invoice should net to zero cost and zero gross profit.
Q: What if I want to use inventory I already have in stock instead of ordering new?
A: Enter a warehouse release for the goods (zeroing out the sell price), then proceed to A/R following the same basic steps, changing the GL distribution from cost of sales to your expense account.
Q: Do I need to account for use tax on these items?
A: Depending on your state's use tax laws, you may need to add entries crediting Use Tax Payable and debiting the expense account.
Tags: order-processing, internal-expense, distributor-use, work-in-process, use-tax, DB-distributor