Inventory Tracking Options 6280 QuickBooks Online 2023

QuickBooks Online 2023 inventory tracking options, get ready to start moving on up with QuickBooks Online 2023. Here we are in our get great guitars practice file,


we started up in a prior presentation using the 30 day free trial, we also have open the free QuickBooks Online test drive a sample company. If you want these two things open at the same time,



I suggest opening the sample company in an incognito window or in another browser. If using Google Chrome, you can go to the three dots in the browser,



open the new incognito window type in QuickBooks Online test drive, we will be using the test drive to compare and contrast the accountant view, which is what the get great guitars is in which you can see on the left hand side and the Business View,



Which is what our sample company is in, you can toggle back and forth between those two views by selecting the cog drop down, and then switch the views on down below. In prior presentations, we set up the company file, we looked at some of the preferences in the cog up top, we took a look at our general ledger.



Now we’re entering beginning balances, I’m imagining that we had some accounting done in a prior accounting system before starting our QuickBooks file. And we want to enter the beginning balances so that we can start from there and go forward. So these are our beginning balances.



Anything before the cutoff date, December 31 2022, we’re going to imagine is in the prior accounting system, we’re going to put the beginning balances in there as of December 31 2022. So we can add new data January 1 2023.



Now we’ve been starting off by looking at the line items that are most complex. And the first one is going to be the inventory assets, we lead into the idea of the inventory assets by first entering the service items.



Now we’re going to be entering the inventory items, which have another level of complexity, because they’re gonna have the units of inventory, as well as the cost of inventory. That will then come out to the total here of the inventory assets at the beginning balance. Now note that as we do that, we should get this number as the end result.



And the other side, because it’s a double entry accounting system might be reported to the to the opening balance equity account. And we also want to think about the form that might be used to do that, I think they’re going to use kind of like an adjustment form.



So an inventory adjustment type of form in order to record that transactions. And if we do that for all the accounts, then we should remain in balance. That’s the next step.



Now before we enter the inventory, I first want to just go over the different ways that we might be tracking inventory in the system, because a lot of times people see that they have inventory,



and they say, Okay, I have to do things the same way, I’ve got to use all the functionality of inventory tracking within the QuickBooks system, that’s not necessarily the case,



QuickBooks has the capacity to track the units of inventory. But you might well have a system or the type of business where you don’t need to do that. And you might track it in some other way. And that would be perfectly fine.



So I just want to look at the different methods for tracking inventory. So I’m gonna go to the flowchart over here. This is the flowchart on the desktop version.



But I think it’s just a nice flowchart, the forms are generally the same, and the online version just to think about inventory in general, and what type of tracking we have to do when we deal with inventory.



Now, obviously, it will depend on the type of business you are in as to whether or not you have to deal with inventory or not, if you’re in a service business, if you’re a bookkeeper, a law firm or something like that, you don’t have much inventory other than possibly paperwork.



And therefore the billing is more straightforward in that case, because you’re just going to have time to deal with and you’re not going to have to deal with physical inventory tracking, you still might have to do a cost, you know, a, a accrual kind of system,



which would be more complex than, say gig work that has inventory that has no inventory, possibly, if you if you’re just getting paid by YouTube, for example.



And it’s going to be a cash based type of system. If you have inventory, then you’ve got two sides to it because the inventory generally has the vendor side of things when you purchase the inventory. And then it has the customer cycle side of things when you sell the inventory. So let’s go from the easiest method to track inventory to the most difficult method to track inventory.



The easiest method would try to be to remain on a cash based system, because inventory usually is the thing that that makes us move away from a cash based system.



The fact that we put inventory on the books as an asset instead of just expensing it when we purchase it is an accrual thing. It’s a deviation from a cash based system.



So if for example, we’re in a kind of system where we’re buying supplies, specifically for a job cost system for a specialized job, if that’s and so we don’t have a lot of inventory on hand than at any given time, which is buying the inventory as we complete the job.



And then we’re going to invoice the client at the end of the job. And that case, you might be able to stay on a system where when you buy the inventory with a check form, or an expense form or a bill form, then you just expense it to cost of goods sold,



which is a little bit out of order on from an accrual perspective. But But cash based perspective, it makes sense on a cash based perspective, because you’re expensing it before the sales are happening.



On an accrual perspective, you would like the sales to be there, at the same time that you that you expense it.



But since they’re gonna happen fairly soon, it might be okay, right, you’re going to, you’re going to expense it as a cost of goods sold. And then when you invoice them, you’re not going to record cost of goods sold.



Again, you’re just going to record a sale, kind of similar as if you’re not dealing with inventory, you’re not going to have a decreased inventory and record cost of goods sold, you’re just going to record the sales side of things, which is similar to a service type of transaction. So that’s the easiest way to deal with it, you just don’t deviate from a cash based system.



But if you have a significant amount of inventory, you can’t do that. Because now you need to track the inventory, you need the internal controls of tracking the inventory. And for taxes, they might force you to track inventory for the tax code.



And also, for your business purposes, you want to generally the accrual method is the preferred method, typically, when you have inventory. So now when you buy the inventory with a bill form, or a check form,



you’re going to put it on the books as an asset, as opposed to just expensing it at the point of purchase. So now we have the question, well, I could put it on the books as an asset. And, and then not track it, the number of units of inventory in the system, but rather tracking outside of the system using a periodic inventory system, we would call it.



So in that case, you for example, every time you buy the inventory with a bill form, or a check form or an expense form, you just increase the inventory account. But you’re only increasing the dollar amount of the accounts there. And you’re tracking the units of inventory, possibly on an Excel spreadsheet,



or a Google Sheets spreadsheet or something like that. And then when you make the sales, you make the sale of inventory, and you don’t decrease the inventory account every time you make the sale. But rather, you make the sale like a service item, you just record the sales side of things.



And then periodically, at the end of the night, at the end of the week, at the end of the month, you count your inventory that you that you have left, and then you try to figure out the cost the units that you sold, beginning inventory,



this is the formula plus purchases minus ending inventory gives you the cost of goods sold. And then you do a periodic adjustment nightly, weekly or monthly, lowering the inventory in your accounting system and recording the other side to cost of goods sold.



So that that system actually works quite well. And then you don’t have to track the inventory within QuickBooks,



which can add a lot of complexity to the QuickBooks system, but rather track the inventory outside and just make a periodic adjustment in the QuickBooks system.



So you’re not tracking the units of inventory in QuickBooks, you’re just tracking the dollar amount, you’re not increasing, or you’re not decreasing the inventory every time you make a sale with an invoice or sales receipt,



but rather making a periodic adjustment to decrease inventory record cost of goods sold at the end of a period based on the physical count and your cost of goods sold calculation. That’s method number two. Method number three would be the full service system.



So now you’re tracking inventory within the QuickBooks system. That’s what we’re going to practice here. So I just want to emphasize that you don’t have to do it that way. But we’re going to practice that method.



That’s the most complex method to set up within QuickBooks, but also gives you a lot of benefits to set it up within QuickBooks because now you’re tracking not only the dollar amount in QuickBooks, but also the units in QuickBooks.



So now when you buy the inventory, you might have a purchase order and then a bill or you might buy it with a check or an expense form.



You’re increasing the inventory account just like with the periodic system, but you’re also tracking the units of inventory, you now have a sub ledger that has the units of inventory, as well as the the amount of inventory and then when you sell the inventory, you are decreasing inventory.



Every time you make a sale. That means you have to use an invoice or sales receipt. You can’t just use a deposit to record sales. as it doesn’t have the same capacity to decrease inventory and track the inventory.



So we’ve got to use one of these two forms, and then it will automatically decrease not only the inventory amount in dollars,



but also the unit value of inventory. So we can track it, that doesn’t mean that we don’t need to do a physical count, we’re, we’re still going to do a physical count, possibly nightly,



weekly, or monthly to see if our inventory in the system ties out to what is in reality, it should. But it doesn’t oftentimes in reality due to shrinkage, spoilage, theft, and that kind of stuff. So those are the general methods. Now we are, of course going to use the full service inventory method.



And we’re going to start off by putting our beginning inventory into the system. So if I go back to the QuickBooks file here,



and the way we’re going to do that, if we go down to the sales tab on the left hand side, which if you’re in the business view, is under the bookkeeping, tab. And then we’re I’m sorry, it’s not in the it’s in the get paid and pay tab, and the products and services.



That’s where it is under the Business View. And then under the accounting view, it’s under the sales, and then products and services. This is where we were last time when we entered our service items.



Now we’re going to do a similar process and enter the inventory items. So we could do that by saying a new button up top, and then add the inventory item, we’re going to actually track the inventory.



And you can see it’s got a bit more complex of a structure, there’s more fields that we have to be filling out than if I was to look at the comparative service item here, which has less fields because we don’t need to deal with the tracking of the inventory units, or the inventory account or the cost of goods sold account.



And of course, we can upload all the inventory and import the inventory. And that’s what we’ll practice doing. Next time as we import the inventory. It should one put the inventory dollar amount.



So we match this number in our beginning balances, it should put the the units of inventory in the sub ledger number two, as well. And then the other side of the balance should go to some kind of equity account. And so we’ll see that next time, it’ll be great.



And then if I hit the plus button, and I go to my invoice, we will then be able to populate the invoice. Now just realize also maybe I should first look on the inventory, what will happen is we’ll have a purchase order that might deal with the inventory when we buy the inventory.



And then we’ll typically enter a bill oftentimes for the inventory, and then pay off the bill. Or we might just buy the inventory with a check form or an expense form. And then when we sell the inventory, we’re going to we’re going to use an invoice or a sales receipt.



So if I go into an invoice, for example, then we’ve got our product information down here, it’ll should populate down here. So we can imagine then, if we’re in a store situation,



and someone just brought up a piece of inventory, we should be able to find it in the drop down nice and easily. And the invoice will then recreate a fairly complex transaction. And that’s the point.



So now once we get everything set up, we want the data input to be easy, even for fairly complex transactions. Because once we get the invoice fully put in place, it’s going to increase if I just pick a transaction below, it’s going to increase the accounts receivable, the other side is going to go to sales driven by the item. And there might be sales tax.



So the difference between this will go to Sales Tax Payable, it will also decrease the inventory account and record the cost of goods sold account.



And it will have a sub ledger for the customer. That that’s related to the accounts receivable and a sub ledger for the units of inventory. So that’s actually a fairly complex transaction,



a lot going on the data input, however, because we set it up properly, setting up the GL accounts, the sales tax accounts and the items. It should be pretty easy to do the data input. So that’s what we’ll do next time.



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