Packing Material

we are a trading concern

We buy a product and sell the same to the end user after re packing it in small boxes.

We get the invoice for packing boxes (local bill with VAT)

Now what should be the entry for this invoice, direct expense or misc. expense ??

 

Thanks in advance...

 

Replies (7)
Quick Summary
Discussion on accounting for packing material used in repacking goods. Since repacking is core activity, packing costs can be treated as direct expenses. Creating a separate packing expense account is advised. Inventory tracking is optional but useful for control and clarity.

Dear Sidharth,

Generally an item is treated as Direct Expense if it is directly related to the operations of the Organization..(Like Wages to Labour for a manufacturing Concern will be treated as Direct but Salary to officers/executive will be treated as Indirect Expense)

Since Re-packing is ur core activity as u have mentione then it should be treated as Direct Expense..However, if amount is not much as compared to other expenses than it can also be treated as Misc./Other Expenses..

thanks for a quick reply...

 Direct Expenses looks to be the right choice..

So can I make a  'packing expenses' account and enter bills of packing boxes here...

Should i enter inventory details or it can be skipped....

 

we also charge packing charges from our customers in our sale bills can we use the same head for entering purchase bills of packing boxes...??

Dear Sidharth,

The first option to book it separate from the one u collect from ur customers is better option..

Further, I would suggest u to keep track of inventory as well..But again if at any given point u r not holding inventory of much value in relation to ur expenses then u can book entire as expenses..

Best is to enter inventory details on following grounds:-

1) Better Monitoring,

2) Clear Accounting

3) Cost Control view point..

its better to skip if u r not maintaining inventory ..

only accounting entry is enough

DAMAGE PACKGING CARTOONS SALE ACCOUNTING  HEAD

 

There are different things here. If your repacking then you have a principle agent relationship. If your billing invoice as commission then the above is satisfied. But if your making entries as purchases and sales, then your the owner of the goods. A wholesaler is a principle agent relative not unless risks and rewards lies with the repackaging guys. 

If your selling repackaged or not the risks and rewards lie with you. Agent has it in his inventory.  However, terms and conditiins may vary.

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