It was the beginning of COVID-19 and things were going crazy. There was a shortage of Toilet Paper. Ted in purchasing wanted to make sure his company’s “needs” were covered. He was lucky enough to secure 200 cases of toilet paper. Since this was such a valuable commodity, Ted decided that tracking this in inventory was the best movement (or BM for short). So he came up with a bright idea of setting up TP as a Part ID. But he had the dilemma of not wanting to put the cost into the inventory for raw materials and finished goods.
Ted wanted to expense it. He talked to Shannon in accounting, who was rather junior but eager to make a mark for herself in the company. They starting poking around in Visual when they noticed the Accounting Tab in Part Maintenance. They wondered “What would happen if I entered Account # 2 – Total Paper Expense in this tab?” They did a little research and set up a test in the copy of the database.
- For the TP part, #2 was assigned to the Accounting Tab – Material Cost bucket only. They weren’t going to add burden that would be overkill.
- Purchase Order was created for TP and received.
- Then costing utilities with the manufacturing journals were run.
- Ted and Shannon checked the postings and were able to track the TP in Account #2.
Ted was feeling pretty smug at this point. What a cool Idea. He was feeling proud as a peacock. What a feather in his cap. Now Ted’s problem is he likes shiny things. Reimplemented this for the TP purchases and promptly forgot about his wild idea.
Months went past and Charlie noticed TP on his inventory list. “Geez Ted – What the heck is this? I don’t want to see it on my inventory list.” Ted explained his logic but since the TP crisis was over, he agreed to adjust this out of inventory.
Next month-end well, “sh… hit the fan”. Charlie notices a 2K expense under his inventory adjustments account. Shannon saw a negative balance in the #2 account.
At this point, Ted is so confused. He thought he was doing a good thing. With his tail between his legs, Ted goes into Jack’s office. Jack is the company’s Visual guru. He knows all, he sees all. Ted does his best to explain the situation.
Jack clicked a few buttons and sat Ted down to explain. “Well Teddy, here’s what happened. That GL account that you used on the Accounting Tab in Part Maintenance is for inventory. When the TP was adjusted out, Visual looked at the GL interface table and used the inventory expense account there.” Looking down his nose, well you know there was another way.
We could have set up what I call “Creative Product Codes”. I like to start the codes with X to mean expense. That way it doesn’t get intermingled with any of the other “real” products codes. Then we could assign Account #2 to all the buckets (Inventory, WIP, Inventory Adjustments, Sales and Cost of Sales). Here’s what would have happened.
- You receive the TP; the expense is posted to Account #2.
- When you adjust the parts out of inventory, it would debit & credit the same account. Thus, there is no impact in the financial statements.
Ted exploded: “Holy Crap Jack. Where were you 6 months ago? That would have saved us a lot of problems.” Jack stated: “Yeah, well Teddy, I have been using this process for years to keep track of factory supplies.” The beauty is, it is the best of both worlds. You can track inventory but get to expense it at the same time. Just think of how you could use this.
Ted sat back as he pondered. “Hey Jack – could we set up one for marketing materials? And what about some of our other PPE that we have been buying since COVID started? Or … or … even some office supplies?”
Jack responds: “Now you are thinking Teddy, but you might be getting a little exuberant on the office supplies.”
Another alternative was creative Product Code.
You may have seen Ted in some of my prior blogs. The character is loosely based on my Dad. On Monday, January 4th, we lost him to COVID-19. We are saddened, but will always remember his keen business mind, his smile that he would share with everyone, his creativity, his jokes, and his joy for life. I am forever grateful for the life lessons he taught me as I went through the “School of Ted”. He was one of a kind.
