Blue Flower

NEO-FREIGHT

 

There are two ways of managing the actual cost versus the estimated cost:

  1. When accounting enter invoices received from vendor against files, the amount can be different from what was estimated by operation. It can be lower, equal or higher.
  2. When accounting enter invoices received from vendor against files, the amount can only be equal or lower. It cannot be higher that what was estimated by operation.

 

Example:

 

We enter an estimated cost of $1,000 CAD for the file.

 

A – ACTUAL COST CAN BE HIGHER THAN ESTIMATED

 

When the system is set so accounting can enter a higher amount that what was estimated, the user has to put it in the $ Additional column.

 

The disadvantage of this setup is that you need to put in place a manual system so accounting go and see operations when the invoice amount is superior to the estimated amount.

The advantage is that, when you look at your file P&L, you see the difference between the estimations and the actuals, giving you the possibility of analyzing and getting better. 

While the amounts against the estimations are lowering the provisions in the GL accrual liabilities, the additional amounts are adding new expenses in the GL.

 

 

 

B – ACTUAL COST CANNOT BE HIGHER THAN ESTIMATED

 

While the estimated cost was $1,000, we receive a final invoice of $900.

In this case, the user can only enter a maximum of $1,000 against the estimated.  

If the amount is superior to the estimated amount, operation has to go back to operation to know if the additional amount is accepted.  If it is, operation will modify the original PO if possible, or create a new additional PO for the difference.  Then, accounting can post the amount.

If the amount is inferior, it may be because another invoice will come from the vendor to complete the PO, or it could be because the actual cost is lower that what was estimated.

 

 

In this case, because we reversed only $900 of the $1,000 provision we kept in the GL accrual liabilities account, we will need to indicate to the system that there will be no more invoices coming for this estimation.

By manually changing the status of the purchase order to close, while there is still a pending amount in provision, the system will automatically reverse the reminding amount to clear the provision.

 

The disadvantage of this setup is that you lose the original estimation as it is modified as needed.  So you cannot analyze where the discrepancies are.

The advantage is accounting has the obligation to get an adjustment or a new PO from operation, insuring that nothing superior to the estimation is paid without full knowledge.