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
- Bill
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
If I were starting a business, I think I’d load all your videos into one bit ‘program’ and do everything you suggest. I like the pace of your videos and the advice is obviously excellent.
Thanks! At some point I will be putting up “Nerd’s School Of Business” which will have exactly what you are describing but all new videos and with a nice clean layout. You can get a sneak preview of my mind map on this here:
Nerd’s School Of Business
My question is about keeping track of additional costs of items. For example, if I have dog beds and I buy labels, boxes, and other shipping equipment (i.e. padding), do I keep track of each of these additional costs on each order. If so, how do you do that? Or are they just a one time expense? I was hoping to be able to create an invoice for a customer and have, for example a dog bed sold. I would make that visible to the customer. But could I make non-visible to the customer the cost of the box, the label, sticker, etc. so I can get a more detailed idea of my margins? If so, how do I do that? Do I enter these items as inventory items, non-inventory items, prepaid supplies? Or just expenses? I am looking forward to your response.
Andrea
Hi! You can do what you are describing with “Assembly Items.” This allows you to take the individual inventory parts and combine them to make a finished assembly item. That way when you sell that assembly item all of the associated costs come out of inventory and get booked to Cost Of Goods Sold.
Here is a post with a fairly simple example of how to set up and use assembly items:
QuickBooks Inventory With Some Assembly Required
The other way is to treat the additional items like repairs:
QuickBooks For Inventory Repairs (Part 1)
QuickBooks For Inventory Repairs (Part 2)
Great Article with Great Video…It really Helped, Keep it up! Nerd
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Thanks Rick!
Thanks for the help. I’m a farmer trying to learn quickbooks for tracking my financials and inventory. One question for you (if you’d be so kind): I am trying to figure out how to increase the amount of inventory on hand without creating a bill. The reason for this is that I produce maple syrup and I do not purchase anything from a vendor to increase my inventory. If you have any insight into how I could increase the inventory in a way that makes sense that would be much appreciated.
Hi. The only way to increase inventory with out entering a bill is to post an inventory adjustment. Vendors -> Inventory Activities -> Qty or value adjustment. Post a qty adjustment to add to the appropriate inventories.