Accrued Liabilities - System Logic

Customer Invoice:

Accrued Liabilities will only be posted to on the Customer Invoice if the following criteria are met:

• Is the final invoice (not a progress invoice)

• There are Purchase Orders for vendors that have not been marked as “Internal Cost Only”

• There is a quantity of items that are not yet invoiced by the vendor(s)

Accrued Liabilities will be debited (decreased), and COGs will be credited (increased) by the same amount.

Vendor Bills:

If there is a balance in Accrued Liabilities, the bills will just reduce that balance to 0 first.

If your vendor bills come in less than expected (less than the amount of Accrued Liabilities on the Customer Invoice), The system will first empty out the Accrued Liabilities, then debit COGs (to reduce it) by the difference, and credit Accrued Liabilities (to reduce it) as the counter entry to the COGs.

If your vendor bills come in more than expected (more than the amount of Accrued Liabilities on the Customer Invoice), the system will empty out Accrued Liabilities, then credit COGs to increase it by the difference.

The adjustment to COGs and Accrued Liabilities (in the case of bills being different than expected) only happens on the final vendor invoice. The system recognizes the final vendor invoice by checking the quantity of Items Billed vs the quantity of Items on the POs/Acknowledgements where the Vendor is not sent to "Internal Cost". This is to ensure all items have been invoiced, even if the cost has changed.

Example Scenario:

Customer Invoice for $10,000. $6000 Furniture, $4000 Labor. Expecting a bill of $4000 from the furniture vendor, and $2500 from the install vendor.

Customer invoice posting will look like:
Revenue – Furniture: $6000
Revenue – Installation: $4000

Furniture – COGS: - ($4000)
Accrued Liabilities: $4000

Installation – COGS: - ($2500)
Accrued Liabilities: $2500

Vendor Invoices – Example 1: Bills come in Higher:
Furniture Bill – Comes in at $4500
Posting will just be a credit to Accrued Liabilities of $4500 as the sum of Accrued Liabilities from the initial invoice was $6500. This leaves a balance of $2000.

Installation Bill - Comes in at $3000. This is the final bill.
Accrued Liabilities will be credited for $2000 (the remaining balance)
Installation COGs will be credited (to increase it) $500
Furniture COGS will be credited (to increase it) $500

Vendor Invoices – Example 2: Bills come in Lower:
Furniture Bill – Comes in at $3500
Posting will just be a credit to Accrued Liabilities of $3500 as the sum of Accrued Liabilities from the initial invoice was $6500. This leaves a balance of $3000.

Installation Bill – Comes in at $2000. This is the final bill.
Posting will be:
Accrued Liabilities – Credit $2000 to reduce
Accrued Liabilities – Credit $1000 to reduce by the difference between bills and customer invoice
Installation COGS – Debit $500 to reduce by the difference between bills and customer invoice
Furniture COGS – Debit $500 to reduce by the difference between bills and customer invoice