Time Sheet Costs

Service Manager Component Only

The default behaviour of the CAPITAL Service Manager is to treat any time sheet/labour costs as operating expenses. In this way you can show profitability by job using the job costing reports, and not have to worry about the impact of these costs on other parts of your accounting system. The basic format of this system is:

   Gross Sales

- Cost of sales (stock/materials)

   -------------------------------

   Gross Profit

- Wages

- Other operating expenses

   -------------------------------

   Net Profit

Since labour costs are not shown as a cost of sale, and wage costs are entered as part of a separate activity, your net profit will be accurate. The main advantage of this system is that you don't have to do anything special in setting up CAPITAL in order to report the correct total profit. A potential disadvantage is that labour costs are not shown in your sales reporting (but are shown in your job cost reporting).

Why then worry about changing this system? One potential advantage is that CAPITAL comes with a very powerful selection of sales analysis reports. These allow you to look at your company activities by individual product or service, or by groups of products and services, and are therefore more comprehensive then the standard job cost reports.

Showing Labour Costs as a Part of Sales

If you would like to show your time sheet labour rate costs as part of your total sales costs then two preliminary factors need to be considered:

• How is your labour rate cost to be estimated? You should consult carefully with your accountant in determining an accurate cost per hour. Many factors (in addition to wages divided by hours worked) may contribute to this calculation. You should also consider how and when such costs will be periodically reviewed and adjusted.

• You must ensure that you do not unintentionally add wages and labour rate costs together. One must cancel the other out before your net profit is finally determined.

Operators who do not run CAPITAL GL Controller.

If you do not run the CAPITAL general ledger package you must manually ensure that you contra your total labour rate costs against a "nominal" account in your cash book. For example, you could create a cash book called "Time Sheet Labour Cost Recovery". You would then add a credit in this cash book at the end of every period or month. The credit would go to an expense code such as "Labour Cost Recovery". (Be sure to enter the transaction is the cash book as a positive amount.)

The credit amount would best be arrived at by printing a stock sales report by stock group. Only the stock groups relating to labour charges should, of course, be selected for inclusion on the report.

Periodically you would also need to clear the cash book. You could do so by first adding an expense account such as "Labour Contra". You would then enter a cash book transaction that reduced the cash book balance to zero (a negative entry) while increasing the Labour Contra account.

Be sure that you untick the Labour Contra account's Exclude status to ensure that is does not appear on your Trading Statement Report.

Operators who run CAPITAL GL Controller and use the Opening/Closing Stock Costing Method

If you are manually entering your closing stock each month based on your sales report, then you do not have to do anything special. Time sheet labour costs will be shown as "cost of sales" in your sales report, but will not be shown on your profit & loss statement because there is really no impact on your inventory holding levels. (As no goods are actually sold, the unit cost multiplied by zero will be zero.)

Operators who run CAPITAL GL Controller and use Automatic Postings

There is generally no problem using this system with automatic postings. Labour costs will be automatically debited and credited to your cost of sales account for you, saving you the effort of having to manually clear any "doubling up" of labour costs. However, if you will also be generating manual system batches using CAPITAL GL Controller it is VERY important that you assign labour/service codes to general ledger sets that have both:

Cost Of Sales

Stock (On Hand/Inventory)

set to the same account code. For example, if both entries are set to, say, account code 19000, then 19000 would be debited (cost of sales increased) and 19000 would be credited (stock decreased). The net effect of these two postings would be to cancel each other out, and your general ledger balances would not therefore be adjusted.

Remember: You will be showing your labour costs as part of your wages expense. The point of this exercise is to suppressing showing it twice; once as a cost of sales expense, and another as wages expense.

IMPORTANT: All stock codes used for sales analysis reporting should always be set to non-diminishing in Stock Control.

For more information on this topic see: Time Sheet Sales Analysis