Many project oriented companies, like contractors and engineering firms, will sub out some of the services needed to fill a contract with a customer. They need a way to track these costs to which they are committed.
Often, these companies will use purchase orders to accomplish this. Purchase orders need not be just for materials ordered. They can track the committed costs of subcontractors as well.
Above is an Open Purchase Orders by Job report. Reports->Jobs, Time & Mileage->Open Purchase Orders by job.
As an example, we can look at the section for Fran Smallson’s Office remodeling job. Open purchase orders exist for three subcontracts totaling $8405.00. These are costs remaining on this job for which Rock Castle Construction is committed before the job is complete.
There may be other costs as well, but for this post, we are accounting for the subcontractors being used. None have invoiced for their work yet as all the purchase orders are 100% open.
There is a unique method to tracking how much of a purchase order for a contract like these is open.
Purchase orders are normally closed when the quantity ordered is received. For instance, if we ordered twelve plumbing fixtures, the purchase order would remain open until all twelve were received.
It wouldn’t matter how much we paid for the plumbing fixtures, only the quantity would close the purchase order, unless we forced it closed manually.
How then do we deal with a purchase order that tracks one contract for a certain dollar amount and we expect to be invoiced by the subcontractor more than once?
Note the above screenshot for the plumbing subcontractor. The amounts for quantity and rate have been reversed. Rather than a quantity one for $5235, the PO has been entered as quantity 5235 at $1 each.
The total purchase order remains the same amount, but now the plumber can invoice Rock Castle more than once and the purchase order in Rock Castle Construction’s QuickBooks will remain open.
Here is the same purchase order after the initial stage of the plumbing has been complete and the bill received from Lew Plumbing.
Now, you can see the original amount of the contract with the plumber, and the amount that has already been invoiced by our subcontractor.
Below is a screenshot showing how the Open Purchase Orders by job report changes once the first stage of the plumbing is invoiced and entered into QuickBooks.
Now our report shows the purchase order as partially filled. The open balance is less than the original total. Our committed costs to subcontractors have been reduced for this job.
Hector Garcia, CPA
Certified Advanced QuickBooks ProAdvisor
954-414-1524
hector@garciacpa.com
