Parts - Setup

• Parts Set-Up: If a Parts Inventory is Maintained

  SETTING UP PARTS:
  Parts are entered using Add Sales Parts.
  Generally the supplier's product number is used as YOUR product number, unless the part number is too long. Management should set a policy on how part numbers should be entered to ensure uniformity and prevent duplication of product numbers.

  When parts are setup, they are generally entered with a separate Product Class for each main supplier.
  This is done using option Sales Product Classes - arrange the main suppliers in alphabetical order. See example:

                    Product Class   Supplier
                    -------------   --------
                         800        BOMAG
                         820        BOSCH
                         850        HILTI
                         900        KANGO
                         945        SULLAIR
                         990        MISC SUPPLIERS
  

  Arranging your parts inventory in this manner has several advantages:
  • Most inventory reports are organized by Product Class, including Price Lists, Inventory Value Reports, Inventory Worksheets, and Product History Reports.
  • Price Increase programs are run by Product Class
  • Revenues and purchases are posted to the General Ledger by Product Class

  Selection of G/L Accounts If Your Firm Maintains a Parts Inventory

  In Sales Product Classes the General Ledger Accounts selected would be:

                         G/L Acct   Account Description
                         --------   -------------------
  COST OF GOODS SOLD       4510     COST OF PARTS SOLD
  REVENUE ACCOUNT          4195     PARTS SALES
  INVENTORY ACCOUNT        1260     PARTS INVENTORY
  

  The General Ledger posting of sales items is controlled by the G/L Account numbers assigned to the Product Class.
  The posting uses these account numbers automatically when Work Order Invoices are posted during the Daily Close process. Also, when parts are purchased in Accounts Payable, the software automatically adds the part value to the Inventory Account selected in the Sales Product Class.

  PARTS PURCHASES:

  Example:     INVENTORY ITEM:   Filter
               SELLING PRICE:    $10.00
               COST:             $ 6.00
  

  When a part is purchased in Accounts Payable, the part adds to your inventory assets.
  It is NOT expensed until it is used.
  When the part is purchased, the G/L posting is:

  Parts Inventory is DEBITED Acct# 1260 for $ 6.00
  Accounts Payable is CREDITED Acct# 2000 for $ 6.00

  PARTS SALES:
  When a part is sold on a Work Order Invoice (using Work Orders), the sale revenue and the parts expense are recorded in the General Ledger.
  The Net Profit equals $4.00, which is $10.00 revenue less $6.00 cost.

  Sales Revenue is CREDITED Acct# 4195 for $10.00
  Accounts Receivable is DEBITED Acct# 1200 for $10.00
  Parts Inventory is CREDITED Acct# 1260 for $ 6.00
  Cost of Parts Sold is DEBITED Acct# 4510 for $ 6.00

  REPAIRS:
  A part can be used for a repair on a Work Order and when the W.O. is completed using Close Internal Work Order the part is expensed to the G/L Account assigned to the Repair Charge code selected when entering the repair.
  Generally, the G/L Account is either Repair & Maintenance Expense or Equipment Warranty expense.
  The posting would be:

  Parts Inventory is CREDITED Acct# 1260 for $ 6.00
  Repair Charge Code Acct is DEBITED Acct# 4810 for $ 6.00 *

  * = Repair Expense Acct

  ADDITIONS:
  Additions occur when the repair costs are added to the value of the equipment being repaired.
  For example, when completing an engine overhaul to a traded-in Bobcat, the costs can be capitalized to add the value of the repair to the Bobcat.
  This is done by setting up the Bobcat on an internal Work Order using Work Orders then finishing the work order with Close Internal Work Order.
  When the next Daily Close is run, the G/L posting for parts would be:

  Parts Inventory is CREDITED Acct# 1260 for $ 6.00
  Rental Equipment Inventory is DEBITED Acct# 1300 for $ 6.00 *

  * = Bobcat Asset Acct

  And the Fixed Asset Tag for the Bobcat would increase by the value of the repair.

  ONE-TIME PARTS PURCHASES:
  Sometimes a part is purchased for one-time use only.
  Even though your firm is maintaining a parts inventory, it may not seem worthwhile to setup this item.
  In this special case, use the Miscellaneous Part as a substitution. Refer to Miscellaneous Part - Setup for a discussion on how to setup and use the Miscellaneous Part.

  However, we caution against using the Miscellaneous Part, since it can lead to accounting errors between the Accounts Payable department and the Parts Department - with Accounts Payable coding the purchase to a G/L Account for Parts Inventory and the Parts Department expecting the purchase to be expensed to a G/L Account for Repairs and Maintenance.

  If your firm uses the Purchase Order programs for parts purchases, this error can be eliminated since the Miscellaneous Parts and regular parts would be clearly distinguished.
  If Warehouse or Item Receiving was completed when entering the A/P Invoice, the software would select the correct G/L Accounts automatically.

  Caution when using the Miscellaneous Part:
  The shop staff should check that the real part number is not setup on the software before using the Miscellaneous Part number.
  If staff use the Miscellaneous Part when the real number exists, then the inventory quantities will be incorrect.

  Often the part number will exist, but the staff does not find it because the dashes or spaces used in the part number sequence may make the product number slightly different than product number tried by staff, i.e. part # 30-890990 is not the same as 30890990.

  Management should set a policy on how part numbers should be entered to ensure uniformity and prevent duplication of product numbers. It will also reduce the use of the Miscellaneous Part.

• Parts Set-Up: If a Parts Inventory is NOT Maintained

  Work Order & Repair programs can still be used, even if your firm does not maintain a parts inventory.
  This is done using the Miscellaneous Part as a substitution for all parts. Refer to Miscellaneous Part - Setup for details.