In a sole proprietorship, how can I account for warranty labor
performed by the owner who draws no salary? Legitimate expense, no
cash out, no income. Journal entry to Warranty Labor COG, wants the
second half of the entry?

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Request for Question Clarification by weisstho-ga on 01 Dec 2005 15:28 PST

Hello,

I am wondering if there is a revenue side to this - for example, is
the customer paying for the warranty service?  Is the manufacturer?

If yes, then wouldn't the transaction be:
     Debit:  Warranty Labor Expense
          Credit:  Revenue from X

weisstho-ga

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Clarification of Question by spevack-ga on 01 Dec 2005 18:40 PST

There is no revenue side or manufacturer. Its a flooring installation
business. I'm new there and found that occasionally glues don't stick,
something warps, etc. and the owner himself goes out on warranty
calls. I feel they're a cost to the business that should be accounted
for; can't for the life of me figure it out. We use QuickBooks, the
Accountant suggested invoicing, charging to an income account and
discounting the invoice (thereby "paying" it) to a COGS account, but
that just brings everything back to ZERO, it doesn't offer an expense,
or write off, AND, remeber, this isn't acutally a sale.
If find it interesting that QuickBooks doesn't offer any information
regarding warranty calls. Maybe in their new industry specific
editions.

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Request for Question Clarification by denco-ga on 01 Dec 2005 19:54 PST

Howdy spevack-ga,

Perhaps you could deal with it in a similar manner as one would a bad
debt entry in QuickBooks.

http://exceed.quickbooks.co.uk/Support/FAQs/Suppliers/ACV202/view

http://knowledgebase.quickbooks.ca/detail.php?qbid=QB817&product=219&buid=QB&cat=Accounts%20Receivable

Looking Forward, denco-ga - Google Answers Researcher

It is not a sale
- but it is part of a past sale

Technically with every sale one should allocate a proportion of the
income to a reserve for sorting out problems.

Think in terms of buying an insurance policy with another company who
covers the warranties. That happens in the domestic building industry.

Your problem is that you find it hard to put a US$ price on the
owner's uncharged hours, but want to shoe horn it into the accounting
system.

Personally I would open two accounts that cancel each other out, and
charge him at $1 per hour
- if he is checking the profitablility of a job and sees $20 then
he'll know that something went horribly wrong.

Given that it is a pretty small business, it might be simpler to just
keep a separate spreadsheet. You might find a way of adding some sort
of code to the customer file that gives an indication of post
installation grief.