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Level 2

Purchases

My client is an auto repair shop. They don't keep much of an inventory. Most (but not all) of their purchases are parts to repair customer vehicles. They bill back the customer for the part(s) purchased. How do I record the initial purchase of the repair part from vendor?  Is it correct to put it into the "Purchases" Expense account with billed to the customer xzy?  The part is purchased and immediately installed in the vehicle and the customer is billed.  Is there a need to use the cost of goods sold account.  My client does up the price of the part that he got for the customer. Just wanting to see the work flow for this.  Thanks!!

Solved
Best answer August 03, 2020

Best Answers
Highlighted
Moderator

Purchases

Hi hhbookkeeper,


You're on the right path in putting the purchase to an expense account. Then making it billable to the customer. 

You can apply a markup instead of using the Cost of Good Sold (COGS) account.  This will tracker the actual cost of the vehicle part and its added price, separately. It will also calculate a default rate based on the percentage set. 

 

To use this feature, go back to the Expenses tab from the Account and Settings. Then select the Make expenses and items billable from the Bills and expenses section. Markup.PNG

As soon as the markup is added on the invoice. A line will show its details and it will not be visible to the customer. 
Expense-Invoice.PNG

Then record the payment as soon as the funds are available to keep your client's books updated.

 

Let us know if you need anything else. 

View solution in original post

3 Comments
Highlighted
Moderator

Purchases

Hi hhbookkeeper,


You're on the right path in putting the purchase to an expense account. Then making it billable to the customer. 

You can apply a markup instead of using the Cost of Good Sold (COGS) account.  This will tracker the actual cost of the vehicle part and its added price, separately. It will also calculate a default rate based on the percentage set. 

 

To use this feature, go back to the Expenses tab from the Account and Settings. Then select the Make expenses and items billable from the Bills and expenses section. Markup.PNG

As soon as the markup is added on the invoice. A line will show its details and it will not be visible to the customer. 
Expense-Invoice.PNG

Then record the payment as soon as the funds are available to keep your client's books updated.

 

Let us know if you need anything else. 

View solution in original post

Highlighted
Level 2

Purchases

Thank you so much for your response.  I have a question about the "markup" you talked about.  My client doesn't have a constant markup percentage.  It varies.  I was recording the marked up amount as "sales" on the invoice.  Is that acceptable?

 

Also I was wondering if I should keep purchases in the cost of goods account so that at the end of year, anything that wasn't billed back to the customer (my client said most purchases were for customers but some were not) would be debited to an asset account at the end of the year.. and credited from cost of goods sold -- for tax purposes.

Highlighted
Moderator

Purchases

Hello hhbookkeeper,

 

You may leave the percentage field blank. This will give your client an option to enter different rates on each billable expense. Though, QBO recommends to use an income account for markup. You can create another income account specific for it apart from the sales.

Markup column.PNG

 

While for those parts that are not billed back, putting them in COGS can be suitable for tax purposes. I would recommend to confer with a tax advisor for further insights.

 

The Community is always here if you have other concerns. 

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