In the case where a company produces their own tooling for use in their production process, wherein the tooling stays in the warehouse or is eventually discarded after one or several uses, how would they account for labor and material costs while keeping the tooling distinct from what would be considered normal inventory or finished goods?
There are two options here:
- Consider the custom-built tool as a fixed asset and build it to stock; then somehow keep it distinct from your ‘normal’ inventory.
Options to distinguish this tool and others like it from ‘normal’ inventory:
A- Create a PRC designated for tools only - such as 'TOL'.
B- Create a separate warehouse for tools only (will be separable in all your reports!)
-or-
- Create a $0.00 work order to total up the cost of the tool’s production (but not have the order affect your sales numbers), then create a ‘tool’ in the production module and attach the value there in the ‘value’ field.
Here note that you can even link the tool to the work order number to provide further clarity / traceability!
For a more in-depth explanation of this accounting question, visit our blog post on the topic: Much Ado About House-Made Tools
Have you implemented any of the above at your company? How do you handle in-house tooling in your accounting processes?