When you use Inventory Adjustments it is posted to the Inventory Adjustments GL account that is setup in Product Line Maintenance. If you use Inventory Receipts then it post to Purchases Clearing. If you use Inventory Receipts the dollars are Debited to Inventory and Credited to Purchases Clearing. You would then make a GL entry to take out of Purchases Clearing and move to Wages or Labor or what ever account you want to use. You could also invoice and use the PC account to wash it out.

Thanks Louie, this I know. My question is to which account(s) should I use to clear this Purchases Clearance. Again if I use Wages/Payroll acct, then I end up with 2 entries in payroll expense acct, one from A/P (homeworker payroll entry), and another from I/M (purchases clearance entry).

Question. How are these people paid? Are they regular payroll or 1099 Contract Labor?

They are normal W2 employees, paid per piece. I don't have payroll module, but when I enter their pay in A/P, I credit our 'Homeworker Wages" expense.

I would say that you probably should be using Bill of Material or Work Order so you don't end up with dollars in purchases clearing.

Looks like you got some debits and credits mixed up in the analysis.

This is the way I typically handle this kind of thing.

Do your inventory receipt.
Inventory $100
Purchases Clearing ($100)

Pay your payroll (this may include other wages)
Wages Expense (Taxes, etc.) $500
Cash ($500)

Allocate the wages

Purchases Clearing $100
Wages Allocated to manufacturing ($100)



Your end result is a F/S statement that looks like this (before sales of the product)

Income Statement
Wages Expense                            $500 
Wages Allocated to manufacturing (100)

Use of separate account to allocate leave wage expense account with a check
of actual total wages paid

Balance Sheet
Inventory 100