Hi Dan,
Thanks for the response. The following is the what I can see in the system - based on the default settings as I havent made any changes:
Customer Project:
1.Timesheet hours get valuated and costs show up under 'Internal Services' and 'Deferred COGS'.
2. After Revenue Recognition, the costs get moved out of 'Deferred COGS' and and reversed against the original 'Internal Services'.
The above results in an equal debit and credit to 'Internal Services' so the Financial Statements have a net zero balance for this.
I was advised the following:
1. The above treatment is correct because timesheet allocations are not 'actual' costs and are only there to show up on Project Reports to show standard costs.
2. The actual 'labour costs' would only show up following a payroll journal.
I am not convinced with the advice provided as I would like to see the standard costs on the Income Statement - which I would then net against the payroll journal and account for the difference in a 'recovery' account.
I think your suggestion about the 'offset' and 'expense' account netting themselves may explain the situation, but I dont know how to fix this.