QuickBooks Pro Plus desktop 2020 to enter transaction for the purchase of inventory using bank feeds overview Get ready because we bookkeeping pros are moving up to hilltop with QuickBooks Pro Plus desktop 2022. Here we are in our bank feed practice file go through the setup process with the view drop down the open windows list on the left hand side the company dropped down home page in the middle,
maximising to the gray area. Reports drop down company and financial let’s go on down to the balance sheet standard report and then customize it up top with a range change from a 101 to one to 1231 to one, then fonts and the numbers bring in that font on up to 14 and okay. Yes, please.
And okay, reports drop down again company and financial this time with a profit and loss the P and L the income statement range change from 101 to 112 31 to one, and then we’ll customize that report fonts and numbers changing the size on up to 14. Okay, yes, please. Okay, one more time with the reports drop down accounting and taxes this time trial balance range change from a 101 to 112 31 to one and customize fonts and numbers change in the fonts on up to 14.
Okay, yes, please add. Okay, now we’re thinking about the inventory. Let’s first go to our bank feeds. So we’re going to go to the banking drop down, we’re going to go then down to the bank feeds. Look at the bank feed Center, which would only be there if you have the bank feeds in place and maximizing the bank feed center.
We’re in our bank feed tab here and it opened up to the reconciled area, we want to go to the unrecognized area on the right. And we’re going to be thinking about a transaction for the purchase of inventory. Remembering that inventory is a complication to the process because we typically will be needing to deviate from a cash basis when using inventory to an accrual basis.
Because like when we talked with the equipment, we have something that we’re not expensing typically at the point time that we purchased it, therefore we have to put it on the books as an asset. So let’s take a look at the balance sheet to think about that.
Normally, when you have inventory, kind of like this equipment here, similar kind of process, when we pay for the inventory, or when we buy the inventory, we put it on the books as an asset, it would be up here in the current assets, but it would still be an asset. And then we’re going to expense it when we consume it in order to generate revenue.
That’s an accrual type of concept. That would be when we make the sale using an invoice or sales receipt. So typically, when you’re tracking inventory within the QuickBooks system, you’ll you’ll usually need to turn inventory on, you could do that by going to the Edit drop down the preferences, and then you go down to the to the to the inventory and items, items and inventory that is and then to the company preferences.
And if it’s not on by default, I’m going to turn that on. If I turn that on, it allows me to track the inventory in the system using a perpetual inventory method however, because even if you have inventory doesn’t necessarily mean that you want to track the inventory within the QuickBooks system on a perpetual inventory method, you might be using a periodic method, which could work just fine for you as well.
So I’m going to turn it on here. And then we’ll talk about kind of the different methods that you might consider with regards to the inventory. So we’re gonna say, Okay, and so QuickBooks must close all the windows, so I’m gonna have to open everything back up, I’ll open it up automatically. So it’ll magically open it up.
So turning it back on here. And now we have the inventory on your modified the settings adding this report, I’m going to say no, no. And don’t show me that again and no, so it closed all the windows.
And then you can open the backup company preferences, homepage, maximizing and I’ll open up the reports again. But before I do, just notice that this row up top, that will not be there. If you didn’t have the inventory turned on, you don’t have this item down below. So that’s an indication that you got that inventory tracking that would be turned on. So now I’ve opened up all the reports.
Again, we’re back on over to the balance sheet. So if you have the inventory tracking turned on, let’s jump on over to the homepage. Typically, what will then happen is you’ll purchase the inventory just from a flow assumption, either with a bill here or you be purchasing with a check, the purchase order could preempt that as well. And that would be increasing the inventory at that point in time, not an expense but an acid deviating from an accrual basis method.
And it would be tracking that in the system not only internally of dollar amounts, the amount of inventory in terms of dollars that would be going up on the balance sheet. But also in terms of units, having a subsidiary ledger report being tracked in the reports drop down under inventory, the main one being the inventory valuation summary, tracking both the units as well as the items in our practice problem,
we looked at guitars. So if that was what we were selling, it would give us the units of guitars by type, as well as the dollar amount of costs. And then when we sell it, we would be selling it generally with an invoice or a sales receipt invoice being an accrual method, the sales receipt being a cache method, you would have to use these two forms generally,
if you’re going to be using their perpetual inventory system. Because these two forms will be driving and be able to tell QuickBooks that we need to decrease the inventory account as well as the sub account in terms of units. If you simply wait for the deposit to happen with the bank feeds, then that’s not going to work for perpetual inventory system, because you will not be able to drive the decrease of the units, which is going to be done with these two forms.
And with the help and use of items, which are in the list strop down, and you can go to the item lists. This is where you can basically add your inventory items. We talked about this more in our setting up or general kind of accounting sections. So you could go and set up your items. And these are going to be a little bit some of the more complex behind the scenes things to get the inventory to be driven well, as well as the service items. But here considering the inventory, which would be a little bit more complex.
So we might talk about them a bit more in the future. But just note that would be the full process, which would be a little bit more complex. Then, if you wanted to just use the bank feeds, you know to create your financial statements. Now you can also consider the inventory, you might say, hey, look, I don’t want to turn on the items,
I don’t want to track all that information within the system, because that’s going to be too complex within QuickBooks, what I would like to do other than that is track the inventory outside of the system using some method which could just simply be an Excel spreadsheet, and track my inventory there.
And then just do periodic adjustments, that’s what would be called a periodic system, as opposed to when you’re tracking the inventory in QuickBooks, decreasing it with the invoice and sales receipt, which would be a perpetual inventory system inventory being adjusted perpetually as transactions are made as opposed to periodically,
whereas if you had a periodic system, you can imagine just increasing the inventory account still deviating from a cash basis to accrual basis, but not tracking the items in the sub ledger within the QuickBooks system. So you could just directly increase the inventory account, and then track your purchases on a sub ledger and Excel worksheet,
for example, and then count your sub ledger accounts or how much inventory you have left periodically by the end of the day into the week or end of the month. And then determine how much the units that you sold, and then create an adjusting entry, which would be a decrease to the inventory. The other side go into cost of goods sold the expense of you consuming the inventory.
So you’d still be using in that method and accrual method, but you wouldn’t be doing it on a unit on a transaction by transaction perpetual method, you would be adjusting inventory periodically to the physical count that you made, assuming that the difference between the physical account and what is on your books is the inventory that just sold. And then you would be decreasing inventory recording the expense cost of goods sold at that point.
And then one other method, the easiest method that you can use in inventory, which would only be applicable in certain cases, if you don’t have a lot of inventory if you have a just in time inventory system. So for example, if someone is asking you to make something or you’re going to be purchasing custom things, and they make an order for it, you purchase it and you have inventory for a very short period of time, and then you give the inventory and make the sale.
Then if I go back to the Home tab, you would generally think that you would purchase the inventory, most likely you would get the order first you might make an estimate which doesn’t have any financial transaction related to it. And then you would be purchasing whatever you’re going to purchase possibly with a purchase order and a bill. And then once you have that information once you have the stuff inventory increasing at this point in time, you would then invoice the client at the at the end of the process.
However, if it’s going to be a very quick turnaround, you might say hey look, I’m just going to stick to a cash basis method. And you might say when I purchased the stuff either with a bill or possibly with a check which would go through the bank feeds, I’m just going to expense it at that point in time in the format of cost of goods sold. And that case you have expensed it before you actually sold the inventory your expensing that at the point in time of purchase.
And then you’re going to when you when you get it you’re going to then invoice them or create a sales receipt or just receive the deposit at a later point in time, and at that point in time, instead of decreasing the inventory and recording the related cost of goods sold, as you would do in a perpetual inventory system or doing a periodic adjustment doing the same thing, all you have to do is record the increase.
In this case, the cash that you received, and the other side go into revenue, some kind of revenue account, and you already recorded the expense side, when you made the purchase, you just did it a little out of order you put you made the expense happen before you actually made the sale happen.
But if they’re close in periods of time, and you don’t have a lot of inventory on hand, then maybe you can get away with not deviating from a cash basis method. Even if you have inventory, you’d want to talk to your accountant about that. But that would be the easiest thing to do. So the easiest thing to do stick to a cash basis, if at all possible. But if you have a significant amount of inventory, that’s not going to be possible.
So then the next easiest thing might be just from a from a QuickBooks standpoint, is to just use a periodic inventory system, instead of turning inventory on tracking inventory outside of the system, adjusting it periodically. And then the most complex system within the QuickBooks would be determined the inventory tracking on tracking the inventory on a perpetual inventory system, which means that you would have to use things like the bills typically things like the checks, and then things like the invoice and the sales receipts.
So let’s think about that with regards to the bank feeds, let’s just kind of pick one up, we’re going to start off with just a simple method here imagining we’re just going to stick to a cash basis method. And then we’ll get into possibly looking into the more complex methods later.
So I’m in the bank feeds, let’s go into the filters. And say we want to put it to the checks the decreases here on the checks side of things, closing this out. So I’m going to close this. And let’s just pretend that this this particular primary care is for inventory. So we’re going to pretend this as inventory check amount, this is going to be the payee, I’m going to type in fry America. This is from Erica, imagining this is how we purchase inventory from going to set it up.
I’m going to quick add it I’m going to quick add, it’s going to be a vendor. So I’m going to say okay, the memo is there, that looks good. Now the account that I’m going to put it into, if I was on a perpetual inventory method, or even a periodic inventory method and accrual method, this account would be inventory that I would have to go to if it was on a perpetual method,
I couldn’t really use this method to do it because I can’t, I can’t post it to an item, right, I’d have to just post it to an account. But if I was tracking it outside of the system, I can post it just to inventory. If I’m tracking inventory on a periodic method. In an Excel worksheet here, I’m just going to post it to cost of goods sold, which is an expense account that’s specifically related to the sale of inventory,
recording the expense before we record the income stick into a cash basis method, I’m going to set up that account. It’s not a normal expense account, although it will be on the income statement and be a special expense, the cost of goods sold expense. So you got to make sure to change that I’m going to say okay, so there we have it,
no customer. And if I go to this item, and we were to say that we wanted to add more details. Here’s the information. This was given given by the system, I tried to make this a little bit larger here. So Cost of Goods Sold customer memo, you could make it a billable item. And that’ll make it easier for to basically invoice but just note that one thing that is missing here, you’ll see you’ll note something that if you’ve if you’ve worked with inventory is there’s no room for an inventory item here.
So you can’t relate assign it to an item meaning a purchase of an actual like a guitar, if we’re buying and selling guitars, we don’t have those items to be set up. So I can’t really tie this to a perpetual inventory tracking system, I’d have to enter like a bill before and then match this to a bill. If I wanted to do that we might talk more about that later. So I don’t have that if I check this off as billable, then it’s going to pull in, I could pull it into an invoice if I so choose.
But it’s going to pull in the cost here, instead of pulling in the sales price number one, and it’s also going to be a negative cost of goods sold as opposed to a revenue account. So I don’t really like that billable option. Typically, I won’t typically use that. And then you could of course create a memorized transaction. If this is something that you’re going to be doing on a memorized transaction.
We’re not going to do that here, because we’re just doing a mock pretending of the first one. So there we have it, I’m going to go ahead and add it. Let’s add it. And there we have it. And if I go to the Add added to the register, there it is. So that means it’s going to have an impact on the financials. Let’s go to the financials and look at that impact opening up the carrot that we closed last time go into the balance sheet.
So here’s our information. And so now we’ve got the checking account W Clicking on the checking account, we’ve got the decrease for this one the other side went, you could tell to the split account right there. And you can see this of course a check type of form, there’s our check form, similar form or same form.
Notice down below that it went to the expenses here to cost of goods sold. This is this Items tab is what is missing on the bank feeds to have a do the perpetual inventory system in the bank feeds because I can’t assign an item to it, which is what you need to be able to assign in order to track the inventory items. So attracts that units, and not just the dollar amount.
So I could post this to inventory. But it wouldn’t track the sub ledger by unit, which is what we would need for a perpetual inventory system. So I’m going to close this back out. I’m going to close that back out and close this back out the other side. If I go on over to the Profit and Loss report is going to be in the cost of goods sold.
There it is cost of goods sold double clicking on it. There’s the transaction go into the cost of goods sold. Closing this out. This looks funny, because I don’t have any income yet. How do I have cost of goods sold with no income because I expensed it before we recorded the income, we step to a cash basis method in doing so.
And again that you that might work if you don’t have a lot of inventory that you need to track. So that’s going to be the idea. We’ll talk more about inventory other methods in future presentations.
But this would be the easiest thing to do. If we went into the balance sheet or to the trial balance. You can see all the accounts listed in one area nice and easy, nice and short. We don’t have all those subtotals messing everything up. And this is a great way to check everything that’s been built and constructed as we go