original_pages:off-balance_sheet_gl

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Beginning with Control 4.40.0912.xxxx, all GL entries are classified as on-balance sheet or off-balance sheet entries. This page explains the concepts behind these, how they are used, and the technical implementation.

Concept

Control allows very granular cost tracking. Each widget on every order can be tracked and costed to the order. While knowing these costs is helpful, often these costs are not tracked in inventory and are expensed when they are purchased. In these cases, the costing information is desired for analysis purposes but can't be expensed (or they would result in double-expensing).

Prior to this version, Control used Computed Costs to track these “fake expenses”. Computed costs were a completely separate set of accounts that were outside of the normal Chart of Accounts but otherwise functioned similarly. Order analysis considered both real expenses and computed expenses to determine order profitability.

Computed cost accounts were removed in the specified version. Instead, the existing Chart of Account structure is used but each GL entry is classified as an on-balance sheet or off-balance sheet entry. What were computed costs previously are now off-balance sheet entries, however they use the same Chart of Accounts as on-balance sheet entries.

Off-Balance Sheet Costs

Off-Balance Sheet Costs are used when:

The part has a defined cost
The cost of the part is not tracked in inventory or the value of inventory is not maintained on the balance sheet
The cost of purchases are expensed when the bill is entered.

In these cases, all of the real expenses associated with the cost are incurred when the bill is recorded. They can not be re-expensed when the order consumes the item or it would result in a doubling of the expense.

Control creates a GL entry associated with the cost of every part used in an order. If the part is not set to Accrue Costs the GL entries associated with those parts are recorded as off-balance sheet entries.

Example #1:

100 Widgets at $1 each applied to an order in WIP.
Widgets are tracked in inventory but their cost is accrued.
Widgets are expensed to the “Finishing Expenses” GL expense account
Widgets are inventoried in the “Finishing Materials” GL asset account.

The GL transactions for this would be:

~ GL Account	~ Debit	~ Credit	~ Off B/S	~ Notes
Finishing Materials		$100	No	Decrease the (real) inventory value.
Cost of WIP/Built	$100		No	Because the order is in WIP, the expenses aren't recognized yet but the value is accrued on the balance sheet.

Example #2:
When the order is marked as a Sale, the following GL entries will be posted
||~ GL Account ||~ Debit ||~ Credit ||~ Off B/S ||~ Notes ||

Finishing Expenses		$100				No		Record the (real) expense now.
Cost of WIP/Built				$100		No		Remove the costs accrued on the balance sheet.

Example #3:
A new order.
* 100 Cams at $1 each applied to an order in WIP.
* Cams are tracked in inventory but their cost is not accrued.
* Cams are expensed to the “Production Expenses” GL expense account
The GL transactions for this would be:
||~ GL Account ||~ Debit ||~ Credit ||~ Off B/S ||~ Notes ||

Unspecified Inventory				$100		Yes		Decrease the (fake) inventory asset account. This has no effect, but is necessary to get a balance transaction
Cost of WIP/Built		$100				Yes		Because the order is in WIP, the expenses aren't recognized yet so the value is accrued off the balance sheet.

Example #4:
When the order is marked as a Sale, the following GL entries will be posted
||~ GL Account ||~ Debit ||~ Credit ||~ Off B/S ||~ Notes ||

Production Expenses		$100				Yes		Record the (fake) expense now.
Cost of WIP/Built				$100		Yes		Remove the (fake) costs accrued on the balance sheet.

Note that Labor parts are always credited against a system liability account Accrued Wages. All other part types, if not specified within the part, are credited against Unspecified Inventory when used. Whether the part is being used in an on-balance sheet or off-balance sheet entry, the GL Accounts used are the same.

Advantages

This approach has several advantages:

Easier to Understand. The application of computed costs was often hard for new users to grasp. This was a new accounting concept for them to learn because most new Control users are familiar with only full tracking or no tracking.
Easier Setup. Users no longer have to setup a Computed Cost Account for part costs and a real Expense Account for Bills. Now there is only one expense account associated with the part. It is used in a traditional manner (on-balance sheet) for recording expenses on bills or when full financial tracking is used; and in an off-balance sheet mode when tracking expenses on an order that will be expensed separately in the GL (cost tracking only).
Easier Reporting. Computed cost accounting required completely separate reporting since its structure was not intermixed with the real GL. This change made integrating computed costs into existing GL based reports much easier.

Technical Information

The section contains information about off-balance sheet expenses that may be useful to report writers, support technicians, implementers, and other advanced users. It is not necessary to understand this section to use Control effectively.

Database Implementation

All GL entries are recorded into the Ledger Table. The field Ledger.OffBalanceSheet is used to denote whether that particular row corresponds to an on-balance sheet (0) or off-balance sheet (1) entry.

For ease of reporting access, all on-balance sheet entries can be accessed using the sql_structure_-_gl_viewPrior to Control 4.4, all entries were made directly into the GL Table. The creation of this view should permit backwards compatibility for all financial reports. Reports that explicitly included computed costs (off-balance sheet costs) will have to be modified to use the Ledger Table. . This view is identical in structure to the Ledger table but removes any off-balance sheet entries. The SQL to create the view is simply:

code_formatsql

Create View GL as

Select * From Ledger where OffBalanceSheet 0

code

The GL View should be used for all financial reports, whereas the Ledger Table should be used for cost analysis reporting.

Conversion of Historical Information

In order to upgrade previous versions, the following database changes had to be made:

The GL Table was changed to the Ledger Table
A GL View was created as discussed above.
References to Computed Cost Accounts in the Ledger had to be changed to reference expense accounts and set to Off-Balance Sheet records.
References to Computed Cost Accounts in the Part had to be changed to reference expense accounts.
All computed cost accounts were removed from the GLAccount Table.

The references to computed costs were changed to expense accounts using the following logic:

For the GL, look up the Part associated with the cost. Proceed to the next step.
For the part, use the real Expense Account used for bills. All parts had a real-expense account that was used for POs and Bills even if the part did not track actual costs. Therefore, this should produce a mapping for all computed cost expenses.