QuickBooks and Inventory
My clients often ask me for help understanding and handling the Inventory process in QuickBooks. I always assure them that Inventory in QuickBooks is not difficult to maintain if you are willing to take the time to learn the how’s and why’s behind the QuickBooks basic Inventory handling process. (Please note that QuickBooks BASIC handling of Inventory does NOT track multiple warehouse locations and DOES use the Average Cost accounting method of costing Inventory items upon the sale of Inventory).
QuickBooks costs out Inventory upon sale and capitalizes cost upon purchase when set up properly. The first very basic premise when bookkeeping for Inventory in QuickBooks is to have Inventory in stock BEFORE selling it. This is one of the most common mistakes I find when reviewing client Inventory practices, and it can happen for many reasons including:
- Forgetfulness, laziness, or too busy to maintain the books
- Not knowing how to Receive Inventory in QuickBooks
- Not converting Purchase Orders into Item Receipts and/or Bills
- Not understanding the difference QuickBooks Item types and how to properly use them
- Not understanding how to build and use the Inventory Assemblies
Take the time to research the Inventory process or hire a qualified and experienced bookkeeper (AccuraBooks™) to get you started properly with your Inventory needs.
Having an Inventory indicates that you have a product-based business, and your Income Statement will reflect primarily from this Inventory process. If your process is not set up correctly, you will have issues with flawed reports and your tax filings will also be inaccurate.
If you already have an Inventory process in place and suspect that your numbers are off, there are a few checks you can do to be sure:
- Check Inventory Stock Status and look for negative quantities of items. Negative quantities indicate that your Inventory handling process is flawed and your Inventory costing will also be incorrect.
- Check Inventory Items listing and review the expense, income, and asset accounts that tie to Inventory items to ensure that all accounts make sense and are affecting your books the way you want them to.
- Check Inventory Average Costs (NOT the sale or purchase prices) and look for amounts that seem out of the ordinary. Average costs that are distinctly high or low mean that something in your Inventory purchase process is faulty.
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