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Effects On Costs

If you want an accurate analysis of the cost details, use the Cost Analysis feature in Items and various other programs. It shows you the effect of both deals and rebates.

So how do the deals and rebates affect the cost of goods sold? A deal has the effect of reducing the cost immediately. When we pay for the item, the amount we pay already has the deal taken off. This means that when we eventually sell the item, the cost of goods will take into account the deal and so will the GP%. The system does this because it is a guaranteed income. We get the effect of the deal immediately we purchase the item, we cannot avoid it.

On the other hand, rebates are not guaranteed because if we don't raise a claim, or the supplier doesn't send us the money, we don't get its benefit. This means the cost of goods sold, and therefore the GP%, does not reflect the rebate. Depending on how small your margins are, the system may show that you made a loss, even though with your rebate you actually made a small profit. Remember the retail system is showing the true picture at the time the item was sold. When you eventually get your money, your accounts will show you actually made a profit.

In some retail industries, such as electrical goods, profit, and therefore sales commission, is usually tracked by the individual item. In this case, you may want to see the effect of the rebates in a more tangible way. This can be done if you are using FIFO or Average Cost as your cost of goods method.

The system keeps track of each individual stock item and the cost which you paid for it. When you enter the invoice details using Invoice Matching, the system calculates the expected rebate and record this against the stock item. When you sell that item the system knows the amount of expected rebate and records this with the true cost of goods sold. The system can now give you the GP based on the cost of goods sold (which doesn't take into account rebates, as discussed above) and it can also give you a Nett GP (which does take into account the expected rebate).

Note that this is the expected rebate only. The actual rebate is still claimed using the standard rebate mechanism and could differ. For example, assume that not all your rebates were entered at the time the invoice was accepted. The expected rebate recorded with the stock item is based only on the entered rebates. Later, when you calculate your actual rebates to claim, you realise that you have missed a rebate. You can enter the rebate, redo the rebate claims and it will be used. However, the original stock item will still show the amount that was recorded at the time the invoice was accepted.

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