USA Bill client for merchandise in inventory

[osaben]

Inventory on books for$7,000 (7 units at $1,000). Need to sale/invoice client 4 units at $1,050 ($4,200). I understand that the transactions typically would be: 1) debit COGS $4,000 & credit inventory $4,000, 2) debit Sales $4,200 & credit A/R $4,200. The gross profit therefore is $200.


However, I believe I need the $4,200 to be reflected on my books as an direct expense. So that it can be passed onto the client via an invoice (sales journal posting will debit sales and credit A/R the $4,200) My sales journal is a total direct costs and overhead burden costs.


How do I record the 4,200 in direct expenses?

 

[Radek Výtisk]

Well, not sure I understand your question fully but one obvious error in your question is that it should say Debit A/R $4,200 and Credit Sales $4,200 (neglecting any VAT and things like that).

What I don't understand though is why you need some direct expense? You issue an invoice to your customer, saying We bill you $4,200 for this and this. And you book what I wrote above. Plus you book the decrease of inventory just in the way you wrote.

So you'll have two accounting entries for that one transaction. Or, am I missing something?

 

[osaben]

First, Thank you so much for taking the time to review my question and to respond.

Next, My apologies. You are correct It is a debit to A/R of $4,200 and Credit to Sales $4,200.

The inventory is being billed to our client via a cost reimbursable contract (sometimes called cost plus contract). In a cost reimbursable agreement) the client is billed the actual costs to perform the work, plus an additional fee.

We want the client to pay for the "going rate" for the inventory vs. what we may have paid ($1000), since we will then be replenishing our inventory (at the new rate ($1,050/unit). A $4,200 direct material cost would be needed so that the client we can bill the client.

Since this merchandise inventory and my company is a service provider, I thinking maybe COGS is not necessary. Any thoughts about this? Below is what I am proposing the entries may need to be.

The item highlighted in yellow is what is assigned as a direct expense to the client and the item shaded in blue is a contra expense that brings the total expense line on the I/S to $4000.

Any thoughts or suggestions?

 

[Radek Výtisk]

Ok, so if I understand it correctly, what you did is that you booked 4,200 into the Direct material costs and then made some corrective entry of 200 to get to the actual costs, is that so?

And now, your question is where to put those 200? If so, I would say it should go as a deccrease of the direct material costs as that's what it is by substance.

Does it answer your question? I feel I'm still missing something here, maybe it's something lost in translation, after all, English is not my first language