Parts sale entries: 4 price and cost checks

• Confirm the exact part's cost before setting its price.
• Check both totals against the order quantity.
• Confirm inventory, credit terms and tax before booking.

A customer asks for a part, you quote a price, the customer agrees, and you book the sale. The price is the number everyone sees, so it is the number people check first. But a booked sale also has a cost side. The part left your shelf, and it cost you something to have it there. If you look only at the selling price, you cannot see what the sale is really worth to the business.

This post covers a short check you can run before you book a parts sale. It looks at four dollar figures, uses a worked example from an open accounting textbook to show how the figures fit together, and then covers two other checks: credit terms and sales tax. It is general information, not tax or accounting advice. Your own records, your state's rules, and your accountant's guidance should settle the details for your business.

The four figures are the unit selling price, the unit cost, the total sale, and the total cost. The first two come from the part and the quote. The last two come from multiplying each unit figure by the number of units the customer is buying.

Write all four on the sale record before you press book. If you cannot fill in one of them, the sale is not ready to book.

The unit selling price is what you charge for one of the part. The unit cost is what that same part cost you. The total sale is the unit selling price multiplied by the quantity. The total cost is the unit cost multiplied by the same quantity. Because both totals use the same quantity, a mistake in the count moves both of them at once, which is one reason to check the quantity first.

Keeping these four apart helps. A quote that shows only one price for each part tells you the customer's side of the deal. It does not tell you the cost side, and the cost side is what lets you judge the sale at that price.

Give each figure a plain label on the record, such as "price each," "cost each," "total sale," and "total cost." Labels sound like a small thing, but they stop a number from being read as the wrong figure later. A total that is written without a label can easily be mistaken for a unit price by someone who did not write it. For related quote records, see parts pricing spreadsheet fields .

Check the unit cost before you settle the selling price. A price set without a cost gives you no way to compare the two.

Confirm that the cost belongs to the exact part being sold. Parts that look alike may carry different costs depending on the supplier, the date you bought them, or the version you stock. Use the cost of the part that will actually go out the door. If you hold more than one cost for the same part number, decide which one applies to this sale and write that decision on the record, so the next person who looks at it sees the same figure you did.

Be just as careful with the cost as you are with the price. Do not reuse last year's figure or a catalog list price because it is handy. Those numbers may not match what you paid for the units you are selling today.

If you are not sure of the cost, do not guess and do not fill in the number from memory. Go back to the purchase record or the supplier's invoice for the units on the shelf. If that record is missing or unclear, hold the sale until you can confirm the figure. A sale booked on a guessed cost can look profitable on paper and still leave you with a wrong picture of the business.

When the cost and the price sit side by side, the sale is easier to judge. You can see how much of the price is left after the part's cost. You do not need a complicated formula to begin. You need both numbers, written down, before you decide.

Next, multiply each unit figure by the quantity on the order.

OpenStax, an open textbook, shows this with a sale of packages. On July 1, the example company sells 10 electronic hardware packages to a customer at a sales price of $1,200 each. The textbook gives the total sale as $12,000, written as $1,200 × 10. The cost of each package is $620, so the total cost is $6,200, written as $620 × 10. The textbook's worked example records both totals for that one sale.

One slip to avoid is checking the price for a single unit and forgetting the rest of the order. Read the quantity off the order itself, not off a quote that may have changed. Then run both multiplications again on the final order, and confirm the totals match what you will put on the invoice.

The textbook's package sale uses these debit and credit entries:

Each amount goes to both accounts in its row. The selling price and the cost remain separate.

A second example in the same textbook uses 20 desktop computers, sold at $750 each and costing $400 each. The sale is recorded at $15,000 ($750 × 20), and the cost is recorded at $8,000 ($400 × 20). The computers are a different product, but the pattern is the same as the packages: one set of figures for what the customer pays, and one set for what the business gave up.

Keep these examples in their place. The numbers belong to CBS, the example company in the OpenStax textbook. Use them to understand the pattern, then apply the pattern to your own part numbers and your own costs.

Suppose an order has 20 parts, each with a selling price of $400 and a cost of $400. The total sale is $8,000, and the total cost is $8,000. The figures match because the unit price equals the unit cost. There is nothing left from the selling price after the parts' cost.

When a sale goes out, the inventory on your books goes down by the cost of the parts sold, not by the price you charged. The textbook's computer entry shows this: Merchandise Inventory-Desktop Computers decreases by the cost of the computers, $8,000 ($400 × 20), while cost of goods sold increases by the same amount.

This matters at a parts counter because the shelf count and the book count have to move together. Each part that leaves the shelf should come off the books at what it cost, and that is the figure you should see on the sale record next to the quantity.

Check that the number of units leaving inventory equals the quantity you are billing.

When a customer buys on credit, the sale is still recorded at the selling price. The textbook's credit example says that because the computers were purchased on credit by the customer, Accounts Receivable increases and Sales increases for the selling price of the computers, $15,000 ($750 × 20). The difference is which account goes up on the debit side: Accounts Receivable instead of Cash.

The credit example also keeps the cost side. The same sale on credit still records the cost of the computers, $8,000 ($400 × 20), against inventory.

The textbook sets out the credit sale this way: on July 7, CBS sells 20 desktop computers to a customer on credit, with credit terms of n/15 and an invoice date of July 7. Before you book a credit sale, write down the terms and the invoice date on the record too. Then check that the amount owed equals the total sale, not the cost and not a single-unit price.

A credit sale also needs a clear record of who owes the money and when the invoice was dated, so the question of what is owed can be answered from the record.

Check sales tax against your state's rules before you book, because the four figures in this post leave tax out. Treat tax as its own check. Look up your state's rules for the items on the order. Do not assume one answer covers the whole order, and ask the tax agency which rules apply to each item when you are not sure.

As an example of where to look, the New York page on use tax for businesses (tax.ny.gov) points readers, for more information on sales subject to tax, to Publication 750, A Guide to Sales Tax in New York State, and the Tax Bulletin Quick Reference Guide for Taxable and Exempt Property and Services (TB-ST-740).

Those references are New York's. They tell you where to look in New York, and nothing more. If you sell in another state, find that state's tax agency and check its guidance for the same questions before you book. For related invoice checks, see repair quote sales tax .

Whatever you find, write it on the sale record. Note the source you used, the date you checked it, and the answer for each item on the order. A tax answer with no source and no date is hard to defend later, even when it turns out to be right. This keeps the tax check as clear as the four dollar figures.

The IRS says a return may be selected for examination on the basis of third-party documentation, such as Forms 1099 and W-2, that does not match the information reported on the return. This is from IRS Publication 556 (09/2013) .

For a parts business, that means keeping sale records that agree with the invoices you issue and with the figures you report. If a total on a sale record is different from the total on the invoice, fix the record before the year closes, not after someone else's form shows a different number. A record that you can match line by line is easier to explain if anyone asks about it.

It also helps to compare your year-end totals with the information forms you receive, such as Forms 1099 and W-2 where they apply to your business. Look for differences while there is still time to explain them, and write down what caused each one. You do not need to wait for an examination notice to do this check.

Keep one sale record for each order, and put all four figures on it before the order is booked. The record should also show the quantity, the credit terms if there are any, and whether the tax check is done. When every figure lives in one place, you do not have to rebuild the sale from memory when a customer calls with a question.

Write the figures in the same form every time. Use the same number of decimal places for every dollar amount, and show the multiplication next to each total the way the textbook does, such as $1,200 × 10. If the order changes before it is booked, update the record and check every figure again. Do not change only the total. A new quantity changes both the total sale and the total cost, and a new price changes only the total sale, so each change needs its own check. Keep the old figures on file if your process allows it, so you can see what changed and why.

Finally, make sure the record matches what the customer will receive. If the invoice shows a different total from the sale record, the two need to be reconciled before the sale is closed. A record that agrees with the invoice is the one you can explain later.

Run the check in the same order each time: cost first, then price, then quantity, then the two totals, then the inventory entry, then credit terms, then tax. The order matters less than doing it the same way on every sale, because a fixed routine is easier to repeat when the day is busy.

Choose a parts order today. Put its purchase record, quote and invoice side by side, then check the figures and resolve any mismatch before booking.

What if the cost is missing?

Hold the sale until you can confirm the cost from the purchase record or supplier's invoice.

Does a credit sale skip the cost entry?

No, a credit sale still records the cost of the goods against inventory.