Divisional Accounting

Divisional accounting was added to XETEX Xebra to handle situations where a group of sales representatives, each acting as separate independent distributors, join together to share office and warehouse facilities, the computer system, administration, and support staff. Several of our customers have adapted divisional accounting to provide separate accounting for branch locations. It has also been used to maintain a separate set of books for acquisitions.

The automated separation for divisions is based on the sales representative and customers. From the standpoint of accounting, other possibilities exist for separating divisions but there are inherent limitations. For divisional accounting to work, a single job must relate only to one division. A company wishing to separate divisions between printing and promotional products would not be able to invoice brochures and key chains on the same invoice. Xebra management reporting does an excellent job of providing profitability information by product category. Expense categories for overhead expenses can always be divided by adding account numbers.

Many distributors are becoming involved in production and want to separate the production and sales sides of their business into separate divisions. Many times, the sole customer for the production side of the business is the sales side of the business. In order to generate revenue, the production side of the business must invoice the sales side of the business and collect money, just as if it were another vendor. Sales sells a job to the customer for $100. Sales buys the job from production for $70. It costs production $50 to produce the job. The gross margin on the job for the total company is $50. Two jobs are required. One job records and invoices the customer for the job from the sales division. The second job is used for the invoice generated by the production division to the sales division. For sales, the gross margin is $100 - 70 = $30. For production, the gross margin is $70 - $50 = $20. The gross margin for the two divisions adds up to the correct total of $50. Total revenue, however, is inflated by the amount of the invoice from the production division to the sales division. The result of the two jobs shown above would be $170 in revenue, even though only $100 was invoiced outside the company. Since the IRS bases taxes on the profits, everything is fine there. Some state and local governments, however, have taxes based on the gross revenue.

Review the Divisional Accounting section in Bookkeeping (Section 5) and go to Setup>Options>System Environment and activate Divisional Accounting if desired.