Pet Supply Inc. sells treats, toys and accessories for pets. In order to entice their wholesale customers to purchase a new line of dog treats, they send free boxes to their top 50 customers. In addition, their pet clothing line has gotten popular on Instagram, and to celebrate getting 100k followers, they do a giveaway and give free dog pajamas to three followers.
At the end of the month, the accountant and sales manager are trying to review their month end sales and margins. Unfortunately, all of the samples and giveaways were fulfilled by making a sales order and setting the price to $0. These free items are reducing the sales margins and have to be manually identified and backed out when calculating commissions for their salespeople.
Sound familiar? Dealing with giveaways, samples and other freebies is common across a variety of industries, and the accounting and reporting consequences are the same whether you are giving away dog treats or hardware.
Enter Use Orders:
Use Orders allow you to consume inventory without affecting your margins, keep track of inventory that has temporarily left your warehouse, and control exactly how any consumed inventory is expensed. Use Orders are an alternative solution to a no-cost invoice, but offer more accuracy and visibility.
Each Use Order is assigned a Use Case, such as “Sample,” “Trade Show,” or “Advertising.” Every Use Case can be mapped to a corresponding account in QuickBooks, so the inventory is expensed accordingly.
Line items are added to the Use Order and set to “Consumption” or “Check Out”
A check-out line is for inventory that is expected to return to your warehouse
Example: Bringing a variety of pet clothing items to display at a trade show.
A consumption line is for inventory that will be consumed upon issuing the Use Order
Example: Giving samples of pet food to brand ambassadors.
If a Use Order needs to be shipped to a customer or vendor, LOCATE will facilitate the appropriate fulfillment workflow and allow you to track the inventory to its destination.
As of Version 1.6.3, LOCATE will also calculate Use Tax on the order to keep your financials dialed even tighter. LOCATE will estimate tax on the Use Order using the “average cost” for the parts at the use order’s site. Upon Use Order completion, LOCATE will submit a final tax report for the actual cost of the items used. LOCATE will write a journal entry between the new “Use Tax” account mapping and the “LOCATE Tax Liability” account.
When Pet Supply Inc. switched to LOCATE, they moved their giveaways and samples to Use Orders, keeping the sales and margins reporting clean and simplified. The accountant is now able to see the proper journal entries made to the accounts linked to each use case, and the sales manager doesn’t have to spend hours backing out orders to calculate commissions.