This article should be read in conjunction with Costing of Technician Hours and if your Dealership has selected Option 2 for the Job Costing
The basics of how it works is as follows:
- All completed job clocking entries are stored on the Customer Order > Service Job - Technician time section
- Each job clocking entry will generate a journal entry which will debit - WIP Labor Inventory General Ledger (Work in Progress or WIP) and credit - WIP Labor Expense General Ledger
To see what General Ledger accounts are being used in your Dealership > System Settings > Accounting Integration - Control Accounts - WIP Labor Inventory/WIP Labor Expense (see example below)
- When the relevant Service Job is invoiced, the cost of the labour on that job is equal to the cost of the Job Clocking on the Job and the Cost of Goods Sold (COGS) journal entry reflect this with a credit to the WIP Labor Inventory General Ledger and Debit to Labor COGS General Ledger
- Any balance in the WIP Labor Inventory General Ledger will reflects the total cost of completed clocking entries which have yet to be invoiced out
- Revenue for the Labor on an invoiced job is always based on the hours billed to the customer at the rate the customer is charged for it.
The offsetting COGS to that revenue is based on the hours clocked by the technicians at their costing rate.
- There are 10 hours of technician job clocking on a job but the dealership only invoices the Customer for 5 hours
- So the revenue is 5 hours at the Customer rate and the COGS is 10 hours at the technician costing rate
- The next question is usually why does the WIP Labor Expense General Ledger get all the credit entries:
- When the Dealership records their payroll to their technicians, this would be a debit to a payroll / wage expense account
- Our entries are basically reallocating that payroll / wage expense to the WIP Labor Expense General Ledger and eventually to the Labor COGS