P&L Treatment Query

[Claire79]

Hi,

I would appreciate some feedback on the following query.

The company i work for has a warehouse full of stock. The foreman makes supplier purchases on a daily basis. He uses the overhead number to make the purchase. Once the invoice is received, it hits the overhead general number.

Then what happens, those purchases made are allocated to various projects depending on what the Project Manager has asked for. For example, the Foreman orders 50 gloves but only 3 pairs are required on a project.

So the process is:
A PO is raised and approved on the overhead number
The invoice is approved on the overhead number
I download a cost report to see 'how many' pairs of gloves' (example) have been allocated to the project and then i debit the project and credit the overhead with that particular cost (not the full cost of the invoice)

This example is extremely basic. We also have charge out rates for vans used on projects and the fuel they use. The fuel invoices are booked to the overhead and so is the van rental.

My query is, does this sound like best practice? If not, what would be the solution?

Thanks

 

[Counterofbeans]

Before I reply, I need to understand what you mean by the following comments

He uses the overhead number to make the purchase.

A PO is raised and approved on the overhead number

 

[Samir]

It seems like the 'overhead' account is being used like a clearing account to 'hold' the expense until it is allocated to the appropriate account. I've seen this done before. Not a bad practice as long as the clearing account is regularly reconciled as everything going in should be going out and the account balance should ideally be zero.