Factoring and Job Costing
Factoring is collateralizing (putting up as collateral) your accounts receivable to a financial institution in return for a loan or line of credit. There will be extra fees to pay for this continuous service. There will also be a need for meticulous maintenance of your accounts receivable and other balance sheet accounts while this factoring system is engaged. The main area of concern with factoring is determining how you will recognize the cash that is received from the factoring company. You should consult with your CPA to determine the appropriate course for your business.
Aside from recognition, you will need to consider other important aspects when factoring, such as:
- Whether or not you want to continue to track each customer’s AR balance after selling their receivable to the factoring company.
- Monthly reconciliations of a possible extra asset, liability & bank account as a result of this factoring system.
Factoring brings a whole new sub-system of bookkeeping into your already existing system, and you need to be prepared in advance to handle this.
Job costing is beneficial to those wanting to track net income or net losses for each customer/job you engage in. There are different schools of thought in handling job costing and the differences all mainly revolve around the recognition of cash received from customers and cash spent to complete work for the job. Consult with your CPA to determine the proper recognition of these cash flows and determine your bookkeeping methods here, as there can be deferred income and deferred expense issues to deal with.
Job costing can be a cumbersome and meticulous process if you want to track the cost and descriptions of every detailed part or supply purchased for the job, as well as using these same detailed expenses for invoicing your client (with a markup).
Job costing is integral for contractors engaged in:
- Systems Installations
Always consult with a qualified and experienced bookkeeper who can guide you in understanding the different options related to job costing, and can create the proper customized reports that will benefit you the most.
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