This article will go through how the accounting integration works for internal deal transactions and some of the confusion with generated revenue and COGS amounts 


Overview 

There are three different types of transactions in Blackpurl for internal deals transaction together 

  • Internal service on stock unit
    When you are doing an internal service work on stocked unit ie adding additional options but the unit is not yet sold and the cost will be added to the cost of the unit 


  • Deal service
    When a stocked unit is being sold and installed options have been added as part of the Unit Deal which require a Deal Service to be completed


  • Deal merchandise
    When a stocked unit is being sold and non-installed options have been added as part of the Unit Deal which require a Deal Merchandise to completed 



There may be some confusion of why the internal transactions generate revenue and COGS amounts, while the selling of a unit also generates revenue amounts and COGS for those items when the unit is sold


Some of our Dealerships may feel that the revenue and COGS for these items should only be generated when the unit is sold but the key point that needs to be understood is that Blackpurl supports inter-departmental (internal) transactions which allow profits to be realized in the correct department



Explanation 


We allow internal transactions to generate revenue and COGS amounts because:

  • This will allow the service department to realize a profit on the work they completed on behalf of a deal 


  • Whilst the unit sales department shows either a profit, loss or break even depending on what they charge the end customer for that same work


  • This is the core reason why the price charged by the parts/service department for any deal service item becomes the cost of that item on the deal


  • The same applies to deal merchandise transactions


For example:


Our example will be a Deal Merchandise and the Deal which it is fulfilling a need for a part but the same behavior is the same for Deal Service other than it usually includes labor too


The scenario is as follows:


  • A Unit Deal is processed and the Unit Sales Department sells the unit for $5,000 with a cost of $3,500
  • Now added to this deal as an option that is a part which must be fulfilled by the parts department

    This part has a retail price of $100 and a cost of $50


  • But on the Unit Deal the Unit Salesperson has given the customer a discounted price of $80


When the options are committed on this deal a Deal Merchandise transaction is generated


It is this transaction that handles everything needed related to the part ie: committing the inventory, special ordering if necessary and reducing inventory when the Deal Merchandise transaction is finalized


The pricing of the part on this Deal Merchandise transaction is determined by the Price Level assigned to internal transactions in Settings & Controls which is discussed below under Internal Pricing Controls


The GL accounts used in the accounting entry generated by this Deal Merchandise transaction is determined by the deal transaction type which is discussed below under Internal Accounting Controls


So first let’s look at the journal entry generated by the Deal Merchandise transaction


  • The first two line items handle the fact that the deal merchandise is invoicing the unit deal and the price on the deal merchandise becomes the cost of the items on the unit deal.  Those items are considered as part of the unit and this is why you see the credit to the part revenue being offset to the unit inventory account


  • The second two line items handle the relieving of the part inventory.  This is why you see a credit to parts inventory being offset by a debit to parts COGS


  • The part revenue and part COGS GL accounts used here are dictated by how the deal transaction type is configured


Next let’s look at the accounting entries related to the invoicing of the deal itself:


Deal invoice:



All deal part and labor options revenues on the Deal Invoice are recorded under the same revenue GL account assigned to the unit using the price charged to the customer on the deal.


Deal invoice COGS journal entry:



Now if we isolate just the part and the effect this has on the profitability in Parts and Sales we get this:


All costs of the part and labor options, which had been added to the unit inventory GL by the deal merchandise transaction and were given a cost on the deal equal to the price charged on the deal merchandise transaction, are now reflected in the last two line items seen above


With this accounting the parts department profit is based on the difference between the cost of the item and the price that the deal merchandise transaction charged to the deal for the item


The sales department profit is based on the difference between what the parts department charged for the item and what the sales department charged the customer for that item


In the above example, the parts department realized a profit on the part of $50 while the sales department realized a loss of $20 because they are the ones who gave the customer the discount


Internal Pricing Controls


The price of parts and labor on deal merchandise and deal service internal transactions is dictated by the Price Level selected as being the Internal Price level in System Settings > Settings & Controls > Price Settings - Default price level on internal service



How you configure this price level depends on what profit the Dealership want to allocate to the parts/service departments for parts and labor sold internally


Typical use cases for this are:

  • parts/labor are priced internally at retail so that those departments get their expected profit

  • parts/labor are priced at a reduced value so that those departments still get a portion of their profit while the remainder is left for the sales department to obtain based on how they price them to their customer

  • parts/labor are priced at cost meaning those departments do not realize any profit on these items and the any profits on them are only realized by the sales department


Internal Accounting Controls

The revenue and COGS GL accounts related to parts and labor used in the deal merchandise or deal service transactions are dictated by how you configure the deal service transaction type in System Settings > Accounting Integration > Transaction Types > Categories


In the above example - the Parts and Labor Categories are just set to the “Default”

  • This means that the category assigned to the parts and labor codes will dictate which revenue and COGS GL accounts are used


  • This also means that any such internal revenues/costs are being recorded in accounting the same way that retail parts and labor is being recorded


  • This is not recommended because any such internal sales transactions will not be segregated as such on your P&L.


Ideally you should have both a Part and Labor category which are specific to internal sales transactions and these categories would have Internal revenue/cost GL accounts assigned to them


  • Then just assign these categories to the deal service transaction type shown above


  • Now these internal sales transactions will be segregated on your P&L separately from your retail transactions.


If by chance you do not want this internal revenue/cost for parts and labor to be reflected on your P&L as revenue and COGS, you can always set your Internal Price Level to price parts and labor at cost


Then in your set up of the internal part/labor categories used on the transaction type you can assign the same GL account to both the Income GL as well as the COGS GL

For example:

  • you would setup a new Parts Category and then assign the same Income GL to both Income GL and COGS GL fields - basically balancing each other out

You would do the same for Labour ie setup a new Labour Category and then assign the same Income GL to both Income GL and COGS GL fields - basically balancing each other out 


Then on your Transaction Type, you would assign the new Labour Category and Part Category to the relevant fields under Transaction Type for Sales Type: Service Deal Service and Service Stock Unit 


  • Now your P&L would only show activity in one GL account and an amount would only appear there if there was any minimal discrepancy between the value on the price level and the actual true cost of the item sold internally