QuickBooks Desktop 2023 filled with inventory connected to P OE or purchase order. Let’s do it within two weds QuickBooks Desktop 2023. Here we are in QuickBooks Desktop sample rocket Castle construction practice file provided by QuickBooks going through the setup process, maximizing the home page,
00:22
go into the view drop down open windows to have the open windows list open reports drop down going down to the company and financial P and L profit and loss or income statement, tab, a 101 to four to 1231 to four,
00:38
January to December, I’m going to increase the font size by go into the customized report fonts and numbers, change the font go to 12. Okay, yes, please. Okay, I know I’m doing this quickly. But this is going to be the routine format that we do each and every time here. So we’re gonna go to the company and financial and then down to the balance sheet standard.
01:01
Change the date to 1231 to four, I believe is the year we want customizing the report up top fonts and numbers, change that font size, bring it on up to 12. Okay, yes, please. And okay. All right, now we got the open windows going back to the home page. And we’ve been considering the vendor section here.
01:23
So remember that the vendor section represents money eventually going out to someone else, someone who’s providing us goods and services that were using within the business,
01:32
the easiest way to pay someone else would just to be having electronic transfers, for example, for expenses, which would be like using a cheque form, but we might be using the bank feeds.
01:42
And that situation would be the most easy way to just basically be dependent on the bank feeds. Or we might write physical checks, in which case we want to write the checks. And then we want to let the checks clear and reconcile the checks with a bank reconciliation.
01:58
Or we could move to an accrual process where we enter the bill first, which increases the accounts payable. And then we pay the bill with an essence a check form.
02:09
But this is going to be a special check that we talked about before that’s decreasing the accounts payable, the other side’s decreasing the checking account, and then we added the inventory.
02:18
So you’ll recall last time we entered the purchase order. And now we’re thinking about the next step in the inventory process. With inventory.
02:26
The question will be do I want a perpetual inventory system or a periodic inventory system, if you have a periodic inventory system, you might not be using the inventory within
02:36
QuickBooks because that’s the perpetual inventory system. And instead, track the inventory outside onset Excel sheet or something like that, where you would count the inventory periodically,
02:47
end of the day, end of the week, or end of the month, and then make your adjustments on a periodic basis, we might talk more about that in a future presentation. Or if you want to track the inventory perpetually within QuickBooks, which does add a level of complexity to the process,
03:04
which we’ll talk about a lot more in our sample problem, then, then then you’re going to track the inventory. Now even if you’re tracking the inventory,
03:13
you still might not be using purchase orders because the purchase order would only be used if you have the capacity to request inventory without actually paying for it until you receive it. So you’ll recall that, if you like make a purchase to something like amazon.com,
03:30
and you’d request something that you’re going to buy there as an individual, typically you pay for it when you make the purchase. And so you’ve already paid for it, therefore, financial transaction happening at that point in time,
03:42
the purchase order would be that scenario, we are imagining, for example, ordering something from China, like 100 cups or something like that. And we have the capacity to request the 100 cups without actually paying for them until we receive it. So then when we receive it, then that’s gonna be the step we’re at here.
04:00
That’s when we enter the bill at that point in time, because now we’ve got the inventory, and then we’re going to pay that bill at a future point in time. So that’s going to be the process. In essence, we have a purchase order requesting inventory, we imagine the inventory coming in, let’s say to our warehouse, for example.
04:17
And then we’re going to see we’re going to open up the cups and we’re going to see a bill and there with it. And we can compare the the inventory that we’ve received to the purchase order,
04:27
and then we can enter the bill at this point in time. So let’s take a look at some of the open purchase orders the purchase orders will not be reflected on the financial statements.
04:38
So to track the open purchase orders the open requests, we could go to the vendor center which could be here or we can go to the vendor drop down vendor center here.
04:47
We’ve got the two tabs up top the vendors and the transactions. If we got a particular receipt of inventory we can find then that particular vendor, look it up that way.
04:59
Oh, Were we might look at all the transactions related to vendors consider the purchase orders, and then possibly filter the purchase orders by all the purchase orders, this would include the ones that had been fulfilled, or we might search for the open purchase orders.
05:14
So here are the open purchase orders. Let’s look at this first one here, double clicking on that purchase order. So this is what was requested, we set this out to this vendor, and requested lumber, the quantity 35 at a rate of 100,
05:31
and the amount 3500. So now let’s imagine we got we’ve got that and we’re going to enter the bill for it and increase the inventory. So what I’m gonna do is, I’m going to copy this, I’m going to close this back out, and then go back to my homepage, so we can see the process. And we’ve got the purchase order.
05:49
Now let’s imagine we’re receiving the inventory here. I’m going to say we’ve received it with a bill. So that’s typical process. I’m going to paste the vendor in here.
06:00
So there’s the vendor and when I hit tab, then it’s going to say there’s an open purchase order exists for this vendor Do you want to receive against one or more of these orders? I’m going to say yes, notice this is connecting for us very nicely.
06:14
This is a really nice kind of feature. And again, it’s a level step up from what you might think of from just an accounting perspective. If you just learn debits and credits as the building blocks of creating the financial statements,
06:27
and like an accounting course or something like that, then you might not really imagine all the all the added benefits that can come into play with these things that aren’t really necessary when you’re thinking about just debits and credits to build the financial statements.
06:40
But clearly, from a bookkeeping standpoint, they make the organization a lot easier. So I’m going to say yes, we’re going to check off this purchase order, I’m going to say OK, and then it populates our bill for us.
06:53
So here’s going to be the population, we’ve got the vendor, we’ve got the date, we’ve got the address, and the amount 1500. That pulled in automatically given by the purchase order.
07:04
Now notice down here, when we looked at the bill before, I’m going to I’m going to close out, it’s got the purchase orders to be received one here just to note I’m going to close this out though, when we looked at the bill before we got the two tabs down below.
07:18
The expense tab is the one that we would be using when we’re just when we know the expense account, or we know the account that we want to be entering the bill for. So if it was like a utility bill, or for buying like office supplies or something like that.
07:33
But if we’re buying inventory, we have to go to the items, the items or something we haven’t really talked about yet how to set them up, that’s going to be a vital point to make the whole process as easy as possible.
07:44
Once the items have been set up, then this connection process is a lot easier to do with a bookkeeper that might not know everything about about how the whole system is working.
07:54
Right. That’s the point, we want to make sure that we can set things up. So the data input process, whether it be done by ourselves, or someone else is as easy as possible. So we’ll talk about how to set up the items in a future presentations.
08:10
But the reason they’re necessary is because we don’t want to just hit an account like inventory, meaning from a journal entry standpoint, you might just say what’s gonna happen?
08:19
Well, there’s going to be an increase in accounts payable because it’s a bill, the other side, it’s going to go to inventory, why don’t I just go over here and type in inventory on the expense side of things, because we’re tracking on a perpetual inventory basis. And we want to track not only inventory,
08:33
but the sub ledger of the kind of inventory we have, and then use our flow assumptions, which in the QuickBooks Desktop is the average flow, you know, there’s first in first out and the weighted average method. If that doesn’t make a lot of sense,
08:48
we’ll talk a little bit more about it when we actually go through the practice problems in QuickBooks will, we’ll dive into that in a bit more detail. But that’s the basic rationale. Now I’m not actually going to record this, I’m just going to close this out. I’m going to imagine what’s going to happen though, we’re going to increase the accounts payable,
09:03
the other side is going to go to inventory. I’m going to close this out so I don’t add any data to it. And I’m going to say no. And then I’m going to go to the balance sheet.
09:13
There we are in the balance sheet. If I scroll down on the balance sheet, we know we entered a bill which is an increase to the accounts payable, that’s what a bill does. So I can double click on the accounts payable, drilling down on it change in the first date from Oh 101 to four.
09:27
And so there we have it. Now this first one, I don’t think was inventory related. I’m going to double click on it drill down on it so we could see the bill.
09:35
And we can see it’s not inventory related because it’s on the expensive side of things or at least it’s not tracking the inventory within the system on a perpetual inventory method. Closing this back out.
09:46
If I choose like this one here, I think we’ll have inventory if I double click on it. We’re going to say okay, there’s the bill we can see it’s got an inventory because it’s using the items tab.
09:56
And so here’s the inventory. Now this particular company is a little bit more fun. Using with inventory, because there’s basically two kinds of inventory tracking that you may be in.
10:05
And you want to make sure that when you’re doing bookkeeping, you’re understanding kind of the specialties of the fields that you are in. So you could have like a job cost system or one in which the inventory is going to go through the work in process account, meaning you’re going to buy raw material,
10:22
it’s going to go through work in process, and then you’ll have the finished goods, which typically would be a job cost system, but could also be a process cost system. And then you could have the kind of inventory system where you just buy inventory, you mark it up,
10:35
and then you sell it, that would be the more easy way for the accounting process. Because when you buy the inventory, the bill then would just be recording the inventory at the cost, increasing the accounts payable, also increasing the inventory side.
10:51
And then when you sell the inventory, you’re going to have to decrease the inventory, record the expense at that point in time the cost of goods sold.
10:58
We’ll talk more about the sales side of things when we get to the revenue cycle. So I’m going to close this back out, notice that we’re not going to spend a whole lot of time on a job cost system, I believe we have a course that goes specifically into that if you want to bid that’s more of a specialty area, as is a process cost system.
11:17
So those are things to keep in mind. In terms of your type of business, what kind of bookkeeping you want to do if you’re a bookkeeper Do you want to specialize in those particular areas, if so, then you got to do some specialized work within them. Okay, and then up top, we’ve
11:31
got inventory, which is going to be an asset account. So notice, if we’re tracking inventory in the system, we are doing an accrual thing at that point in time.
11:40
Because if it was a cash based system, we would just be expensing the inventory when we bought it, if we paid cash for it right, or whenever we paid cash for it. That’s when we would be recording the transaction to inventory.
11:55
And an accrual system, how we normally record inventory, we have to go to an accrual system generally, because we want to track the inventory on the balance sheet.
12:06
And then we want to want to record it as an expense, not when we bought the inventory. But when we sell the inventory. So the inventory is going to go up when we buy the inventory for the cost.
12:16
And then when we sell the inventory, we’re going to expense it in the form of cost of goods sold, which we’ll talk about next time. And we’re also going to have to record the sales price when we sell the inventory. And that’s the kind of stuff that the QuickBooks system will help you to do.
12:33
If using a perpetual inventory system. Although it does kind of complicate things a bit, you might ask is it possible for me to just to just expense the inventory when I pay for it to have an easier inventory system.
12:46
If you don’t have that much inventory on hand all the time, like you could try to do something like that right, you could try to stay on a cash based system. But note that oftentimes, your your taxes if you have a substantial amount of inventory,
12:59
the IRS will want you to be more on an accrual based system with regards to inventory. So you want to make sure to talk to your accountant about your inventory system, and you have one that’s appropriate for you.
13:10
But in any case, if I double click on the inventory and change the first date, oh 10124. So now we’ve got the inventory increasing with a bill.
13:19
So whenever we entered the bill increases Accounts Payable increases the inventory, and then it’s going to be decreased with the invoice because the invoice is the sales document, that’s going to be decreasing the inventory. We’re going to close this back out.
13:33
Now the reason we couldn’t we have to use that item to record the inventory is because we have related sub ledgers tracking the inventory.
13:41
So if I go to the reports up top, and go down to the inventory, and go to the inventory valuation, notice that all other reports other than the balance sheet and income statement are really feeding into or connected to providing more detail about the balance sheet and income statement.
13:59
I’m just putting the end of the year here. And so there we have it. So now we’ve got the the amounts of inventory here, we’ve got the average costs.
14:07
So it’s using a weighted average cost, I believe in terms of a flow assumption FIFO LIFO, weighted average. And then this is the asset value, which is at the 30,006 8338 that should tie out to what is on the balance sheet 30,006 8338.
14:27
So that’s the general idea. Let’s jump back on over to the homepage real quick. So notice when we go through the inventory process inventory is course going to flow through from the vendor side of things to the customer side of things.
14:39
So just a quick recap on what inventory is going to do. We’re going to request the inventory if we have a system where we can request before we pay for it, like requesting coffee cups from China or something like that.
14:52
Then that’s and that’s not going to record any transaction. Then we imagined we’d get the coffee cups with a bill in it. We’re going to make, we’re going to count the coffee book cups and compare them to the purchase order to make sure that we got the right order,
15:06
then we’re going to enter the bill into the system. This records the transaction, increasing the accounts payable. And it increases the inventory, because we had received the inventory at that time with the use of the item, which also increases the sub ledger tracking the items on a weighted average method.
15:26
So and then, of course, we can pay for the bill in a similar way that we’ve seen in the past. And we might have adjustments that we need to do for inventory from time to time, possibly we have like over short adjustments, for example. And then in the future, we’re going to sell the inventory.
15:43
And notice, if you’re using inventory, you kind of have to use the sales forms like a like a sales invoice or a sales receipt. So even if you’re on a cash basis, typically have to use a sales receipt, because if you just use the deposit, then you can’t track the items properly generally.
16:00
So then you record a sales receipt or an invoice. And if it was an invoice we’ll talk about next time, it would increase the accounts receivable, the other side would be going to sales, but that would be for the sales price.
16:13
Notice you need that inventory item to know when you enter the transaction the difference between the sales price and when you go to a grocery store.
16:20
That’s what you see on the on the check or the sales price, but it also needs to know the cost so that it can decrease the inventory that is on the books at cost.
16:30
And record the related expense related to us using the inventory at that point in time cost of goods sold. So that gets a little bit more confusing.
16:37
The sales side of the inventory gets a little bit more confusing because that’s when we see the two different plays of the of the cost and the sales price. So we’ll talk about that more when we get down to the customer section.
16:49
But again, when you look at the inventory cycle, the inventory cycle will be part in the vendor side because we’re buying inventory and part in the customer side. Because of course we’re then going to be selling the inventory