There are many different ways we can pay for things. Accordingly there are many ways to record these purchases in QuickBooks. Inventory is no exception. I like to tell people that QuickBooks should reflect what actually happened in the real world. If I put a purchase on a credit card then I need to record a credit card charge in QuickBooks. This assumes of course that this was a business card. Alternatively I might get a bill for my inventory that can be paid later or I can write a check, or I can pay with my debit card which is really just an electronic check so in QuickBooks that means a check.
Here are the 3 transaction types that can be used to record your inventory purchases in QuickBooks:
- Check (or debit card)
- Credit Card Charge
What I cannot use to record an inventory purchase is a journal entry. Why? There is no place in a journal entry to indicate the Quantity and unit cost of what I am buying. All of the transactions types listed above have the identical bottom section within the dialogue which consists of two tabs; Expenses and Items.
Your Items tab is the key to getting inventory on the books. The type of transaction only reflects how the items will be paid for. Everything else is the same in the items tab regardless of the transaction type. When you enter the quantity and the unit cost in the items tab this is what drives the quantity on hand and the inventory that your item list reflects. The cost that you assign the item during setup is irrelevant – that is only to populate the form when you are recording the purchase. The unit cost sitting in the items tab of your QuickBooks form (Check, Credit Card Charge, or Bill) is what will update that item’s average cost. QuickBooks only average costs your items, there is no other choice.
Pre-paid inventory gets interesting. You do not want to add these items into your inventory counts because you will not have them in stock any time soon. So you have to post your purchase to an asset account called “pre-paid inventory” or as I like to title it, “Inventory – Pre-paid” so that it shows up right next to “Inventory” in QuickBooks. Then when you actually receive the items and get the bill you enter the entire order into inventory and then apply the pre-paid to the balance due on the bill.
This week’s video will show you what it looks like when you are purchasing inventory in QuickBooks as well as what to do about pre-paid inventory