FI Entries for Sub Contract Sales Process

My company is performing sub contract sales process. Let me explain the procedure we follow.

We dispatch Semi Finished Good for Sub Contracter. Sub Contracter grinds the SFg adding some other Raw Materials and dispatches the FG to customer in our account.

The Subcontractor takes a fraction of the SFG as the grinding cost. So no payment is involved in the whole process. The process that we follow in system is

1. Create Sub Contract Sales Order

2. Create sub Contract Purchase Order

3. Perform SFG Stock Transfer

4. Goods Receipt of the FG

5. Executing MR11 for the Sub Contract Purchase Order

6. Billing the Customer

We have a doubt in the FI entries being posted. Let me provide the entire FI Entries being posted in the whole Process

Goods Receipt of Raw Material

Debit Credit
Stock of Raw Material XXX

GR/IR of Raw Material XXX

Vendor Invoice

Debit Credit
GR/IR of Raw Material XXX

Venor XXX

Vendor Payment

Debit Credit
Venor XXX

bank AC XXX

Raw Material Issued for Production of SFG

Debit Credit
Raw Material Consumption XXX

Stock of Raw Material XXX
Stock of SFG XXX

COGM of SFG XXX

Goods Receipt of the FG (Step 4)

Debit Credit
Grinding Cost of FG XXX

GR/IR clg SFG XXX
COGM of SFG XXX

Stock of SFG XXX

Executing MR11 (Step 5)

Debit Credit
GR/IR clg SFG XXX

Grinding Cost of FG XXX

Billing the Customer ( Step 6)

Debit Credit
Customer A/C XXX

FG Sales XXX

Debit Credit
Bank A/C XXX

Customer A/C XXX

We are not sure on whether the entries posted are correct.

What I think should be is

Goods Receipt of the FG (Step 4)

Debit Credit
COGS of FG XXX

COGM of FG XXX
COGM of SFG XXX

Stock of SFG XXX

and execution of MR11 should not be done. Kindly help. What should be the correct entry.

Posted by Ranjit Simon John on Aug 16, 2012 10:12 AM BST

Hi Ranjit,

I'm afraid that your question is too complicated for us to answer here at Solar Accounts - you will need to ask your accountant what transactions to create for each step of the process. If your accountant can tell you what accounts to debit and credit for a particular transaction we can probably suggest a way to enter that transaction into Solar Accounts.

Regards,

Posted by Mark McLaren (Solar Accounts) on Aug 16, 2012 10:42 AM BST

That question relates to SAP, the largest ERP product in the market. You may have heard of some of some SAP users - Shell, Mercedes, HP, Nokia, Siemens,Sony, Nestle,etc. Nice to kow that they are asking you for advice. :-))

Posted by Alan Budden on Aug 16, 2012 11:44 PM BST