UNDERSTANDING ACCOUNTING INTEGRATION - UNIT DEALS


You may question why, when looking at the accounting entries for a Unit Deal, the line items for parts, labour and other committed deal options are being assigned to the same General Ledger accounts as the unit itself instead of a part / labour General Ledger account.


Firstly you need to keep in mind that there is always two or three Invoices involved with these committed deal options:

  1. The Deal Merchandise which fulfills (Invoices) the items to the deal from the Deal Merchandise section and/or
  2. The Deal Service which fulfills (Invoices) the items to the deal from the Deal Service section
Plus
  1. The Unit Deal Invoice itself which involves the customer

Secondly, we need to ensure that the primary profitability for these deal options remains with the parts / service departments.

  • This means that if a deal includes a free part or give away part on the deal, the unit sales department needs to be hit with the loss of the profitability and not the parts department.
  • The parts / service department gets their profitability based on how internal pricing is setup and any variances on the deal between that internal pricing and what is finally charged to the customer on the deal determines the profit/loss incurred by the unit sales department for that deal option.
  • To facility this, the accounting entries related to a part for example involved as a deal option can be simplified down to the following on the two / three invoices mentioned above.

Deal Merchandise / Deal Service Invoices (fulfilling items to the deal)


Here is where we ensure that the parts and service department are credited with their profitability. For any item on one of these invoices the accounting entries for that item are reflected as follows:

GL AccountDebitCredit
Parts Revenue
$100.00
Unit Inventory$100.00
Parts COGS$75.00
Parts Inventory
$75.00

As you can see the second entry, the amount that is invoiced internally is added (debited) as a cost against the unit on the deal. This also properly reflects the $25.00 profit attributed to the parts department.



Unit Deal Invoice (assuming sales gave the customer a $10 discount)


Here is where we ensure that any variances on the deal between the internal pricing and what is finally charged to the customer on the deal determines the profit/loss incurred by the sales department for that deal option.

This is because the cost associated to the item on the deal always equals the price invoiced internally by the deal merchandise / service invoice.


For any one of these deal options on a deal the accounting entries for that item are reflected as follows:


Deal Invoice 
GL AccountDebitCredit
Unit Revenue
$90.00

  

Deal COGS Journal
GL AccountDebitCredit
Unit COGS$100.00
Unit Inventory
$100.00

As you can see, this accurately reflects the loss of profitability for the unit sales department because they gave the customer a discount on the part option.


If the unit sales department had invoiced the customer at the same price it had cost the deal, the unit revenue and offsetting unit COGS cancel each other out thus no profitability will be accredited to the sales department for the item.


While you may look at the accounting entries for the deal invoice and wonder why a part or labour deal item is not being assigned to a part / labour revenue account, you have to remember that the revenue / profitability for the part has already been recorded by the Deal Merch / Service invoice which has fulfilled the item to the deal.