Warranty claims

Hi sabinefriesen:

I would definitely talk to an accountant, but here's how I would handle it.

Normally, you would invoice a customer for parts and labour, but in this instance, the part is covered by the supplier, and part of the labour.

So the invoice should be reduced by  the amount of the part (showing a +/- possibly so the customer knows they got the part covered under warranty), and the amount of labour on the invoice reduced by the warranty reduction. 

So on your invoice, you'll debit the part against itself, and debit part of the labour against itself (the opposite of the credit/revenue).  So your invoice should look like:

Credit: Accounts Receiveable/Sales Part

Debit: Accounts Receiveable/Sales Part

Credit: Accounts Receivable/Sales Labour

Debit: Accounts Receivable/Sales Partial Labour

The other side of this transaction, is the inventory and expenses.  So you have a credit (part coming out of inventory), and a credit memo against the supplier for the cost of the part, plus the labour they're paying for.  Where do you credit?  Against the labour expense presumably since it's being paid for by the supplier.

Hey Sabine,

I realize this is a very old topic & I hope you have it resolved by now butI actually have an Identical Issue with a client of mine and we found more than one way to solve it, also, marking this resolved may help future people with the same problem.

As everyone else is saying, you should reach out to a QBO Expert and get some hands on help, That's definitely the "Right Answer" here as there are some complex issues like taxes and 'playing' with your A/P and A/R accounts.

But, just so I don't leave you hanging here are some ideas to resolve this

Step 1 is Do nothing with your Existing Client, They've been billed and paid and now are making a Warranty Claim. Of Course you could, like my client does, offer them a consolation/gift at the same time to thank them for their patience and trusting you with the work. If you need to Invoice them for anything non-warranty related or not covered, do this as normal.

Step 2 would be to charge the new Part and Labor to the Supplier. You can do this 2 ways:
1 - Invoice your Supplier like a Customer
2 - Use a Debit Memo to notify them of the Credit you want

Each of these methods has their own issue though. If you Invoice your Supplier, you then need to "Pay off" that Invoice with Accounts Payable (to mirror a Credit on your account). and if you choose to "issue" a Debit Memo (which is a demand for a Credit note) then you need to micro-manage that to ensure it comes in as expected & it is not possible to "send" or "print" Credit Memos in QBO unfortunatly.

I find you have to micro-manage this process no matter what method you choose as Suppliers have their own issues/initiative and often change the rules mid-way so you end up just happy you 'got something'. Plus as @KellyMitton mentioned there's the issue of Taxation.

Let's go down the Credit Note Route for now as it's the one I use and I can explain it with images for you.

First, Let's make sure your Parts and Labour are able to be both added to Sales & Purchases documents, See the image below from the Products & Service menu.

Second, Open a Credit Memo in QBO and treat it like you would an Invoice to your Customer for Labor and Parts. This time though, make sure you have the "Supplier" in the Name Field.

I'd recommend adding a unique Ref# so you can track it and follow up to ensure the supplier issues the credit etc

As for Taxes...? You should check with your Accountant or call the CRA to find out what they think. I can think of an Argument for both cases of charging and not-charging GST/HST in this scenario and the Auto Industry already has some interesting exceptions like on Trade-ins etc so please DO double check. CRA has a GST rulings phone like with some AMAZING people on the phones, I highly recommend them !

Contact GST/HST Rulings at 1-800-959-8287

As for the Sending issue, my client has an online claims portal they have to use for warranty in most cases and otherwise they take a screen shot of the Credit Memo and email it to the Accounts Receivable of the Supplier. The key thing is you have to build that relationship with the other side of the transaction so that they go as smoothly as possible.

I hope this helps get you on the right track

Please mark this answer as a helpful solution if it answers your question
Thanks
McBride Bookkeeping