14. Using Inventory Features
Introduction
Merchandise that you own and expect to sell to others is called inventory. QuickBooks provides a full, interactive inventory feature that constantly tracks and updates your company’s inventory totals. Each time you receive new items in stock, your inventory quantity increases and your inventory cost is recalculated to reflect the average cost of all items in stock. Each time you sell an item, your inventory decreases. The cost of an inventory item you sell is recorded in your QuickBooks records at the current average cost of the item.
A reorder feature reminds you when supplies are getting low and tells you when you need to order more. QuickBooks also provides a warning message if you try to sell more inventory items than you have in stock.
Did You Know?
The inventory feature in QuickBooks Online Plus uses the FIFO accounting method. The first in, first out (FIFO) accounting method is used for inventory in QuickBooks Online Plus. Additionally, the inventory feature in QuickBooks Online Plus does not have as many features as QuickBooks Pro or Premier. For example, you cannot create inventory groups or assemblies in QuickBooks Online Plus.
Activating Inventory
Before you can use the QuickBooks inventory features, you must turn them on. You might have already encountered questions about inventory when you set up the file, and as a result, your inventory might already be activated. If you still need to activate your access to the program’s inventory features, this task leads you through the necessary steps.
Select Edit, Preferences.
Click Items & Inventory.
Click the Company Preferences tab.
Check Inventory and Purchase Orders Are Active.
While you’re here, you can check the box to have QuickBooks warn you if you are about to issue a purchase order with a number that duplicates another order.
Also, you can check the box to have QuickBooks warn you if you try to issue an invoice for inventory items you do not have in stock.
Click OK.
Setting Up Inventory Items
When you set up an inventory item in QuickBooks, you provide descriptive information about the item, as well as basic facts such as cost, sales price, sales tax treatment, and preferred vendor. In addition, you have the option of indicating how many of these items you prefer to keep in stock so QuickBooks can warn you when stock is running low. All inventory items must be set up in this manner before you can refer to the items on forms such as purchase orders, invoices, and bills. For an existing business with inventory already in place, this method of setting up inventory items is the most expedient. After you set up your entire existing inventory using the features on the Item List as described in this task, you can enter new inventory items directly from your bills or purchase orders, as described in Chapter 5, “Making Purchases and Recording Payments,” or by using the Receive Items form, as described in the task that follows this one.
Select Lists, Add/Edit Multiple List Entries.
Timesaver
You can access the Items List by clicking the Items & Services icon found in the Company area of the home page.
From the Add/Edit Multiple List Entries window, select Inventory Parts from the drop-down list.
Click Customize Columns if you want to change the order of the information to be entered or the selection of information displayed in this window.
Enter an Item Name, choose from the list of subitems, enter an optional default cost and sales price, and select the proper COGS (Cost of Goods Sold) account from the drop-down menu. Right-click to duplicate rows, copy down, or even clear a column of data.
Important
You can use the handy Copy and Paste features of Microsoft programs to enter data into this Add/Edit Multiple List Entries tool.
Click Save Changes to save your work.
Click Close.
Select Lists, Items List and Press Ctrl+N to open the New Item window (not shown).
Select Inventory Part from the Type drop down list.
Enter the name of the item as it will appear on your inventory list. Choose to associate with another item by selecting Subitem of, and enter an optional manufacturer’s part number.
Choose an optional unit of measure for this item. Click Edit to define a unit of measure (only available with QuickBooks Premier or Enterprise).
Enter the description of the item as you want it to appear on purchase orders and bills when you purchase this item.
Enter the cost you pay when you purchase this item, indicate the Cost of Goods Sold account, and enter your preferred vendor if you have one.
Enter the description of the item that should appear on invoices when you sell this item to your customers, or accept the default description from the purchase information entered.
Enter the sales price you charge for this item. If the price varies, you should leave this field blank.
Change the Tax Code option if necessary to indicate whether the sale of this item is subject to sales tax.
Enter the income account that is credited when a customer purchases this item.
Enter the asset account that is increased when you add this item to your inventory, or accept the default.
If you want to be reminded to reorder this item, enter the quantity of items that represents the cutoff for reordering. Although you can enter the On Hand quantity here, it is recommended that you use an Inventory Adjustment to do this. See the section “Adjusting Inventory Quantities” (later in this chapter).
Click OK.
Did You Know?
Entering the cost is optional. If the amount you pay for this item varies, you can leave the cost field blank and enter the cost when you enter a bill from your supplier.
It is important to record the purchase of inventory properly to record the quantity and cost of inventory items. By using the proper purchase forms to add to your inventory (that is, Write Checks, Enter Bills or Credit Card Charges), you enable QuickBooks to calculate the correct average cost for your inventory items. Always enter the purchase of inventory on the Items tab (not the Expenses tab).
Did You Know?
Never enter a journal entry for inventory. Because you cannot enter an item on journal entries, you should not enter a journal entry for inventory. It will cause the inventory valuation to be different than the general ledger balance. Instead, enter an Inventory Adjustment as discussed later in this chapter.
Did You Know?
The Unit of Measurement feature is available only in Premier and higher versions of QuickBooks. If you use the Unit of Measurement feature in a QuickBooks Premier file and then open the file in the QuickBooks Pro version, you can see the Unit of Measurement field; however, you will not have the ability to edit or create new units of measurement.
Did You Know?
You can indicate the quantity of inventory items on hand. When you set up a new inventory item, you have the option of entering the number of items on hand and the total value. The value of the inventory is posted to the inventory asset account and Opening Balance Equity. Opening Balance Equity should only be used when setting up opening balances and entries should be made to zero it out to the proper equity accounts.
Alternatively, to enter the opening inventory (or to change the quantity on hand after the item has already been set up), see “Adjusting Inventory Quantities” later in this chapter.
Adding to Your Inventory
When you record the receipt of inventory items from your vendors, those items are added to your QuickBooks inventory. You can record the receipt of items from a vendor’s bill, or if you haven’t yet received a bill, the items can be entered from a packing slip. As soon as the bill arrives, one check mark turns the QuickBooks record of received items into a bill that needs to be paid.
Select Vendors, Receive Items.
Timesaver
Click the Receive Inventory icon in the Vendor section of the home page and then choose Receive Inventory Without Bill from the pop-up menu that displays.
Enter the name of the vendor.
Enter the date the items were received.
Enter the name of the item(s) received.
Enter the quantity of items received.
You can enter the cost of the items if you have this information, or you can leave this area blank.
Click one of the Save options; the items are immediately added to your inventory.
Did You Know?
Received items affect your accounts payable, even though you have yet to receive a bill from the vendor. When you record the receipt of items, QuickBooks adds the anticipated amount to your accounts payables as unpaid bills. The bills, however, do not appear in the Pay Bills window until the actual bill is received and recorded in QuickBooks (see the task “Paying Bills” on page 183 in Chapter 5 for more on this topic).
Did You Know?
Entering items changes the average cost. When you add items to your company’s inventory, the average cost of that item is updated to incorporate the new items purchased and the cost entered. Although you can record the receipt of items without entering a cost, be aware that they will be averaged in with your other receipts at zero cost, thus reducing the average cost of all the pieces of that item you have in inventory.
Editing Inventory Items
If the information you recorded about your inventory items changes, you can easily edit the information in your QuickBooks records. You can change information about the item, including item description, the cost, the sales price, a preferred vendor, and the sales tax status. You cannot change the item’s on-hand quantity or the average cost. You also can’t change the item’s type. After an item is designated as an inventory part item, it must keep that designation.
Select Lists, Item List. If the Add/Edit Multiple List Entries dialog displays, click OK.
Click the name of the item you want to change.
Press Ctrl+E.
Change any of the information in the white areas of the Edit Item window, except the Type, which cannot be changed (see the following “Did You Know?”). Note that the information that displays in the edit window varies, depending on the type of item you choose. The window shown here is for an inventory part item.
Click OK.
Did You Know?
Inventory part items can be reclassified as inventory assembly items. QuickBooks offers a feature called inventory assembly items. Inventory assembly items are items built from inventory parts or other inventory assemblies and then sold as one item. Only users of QuickBooks Premier and Enterprise Solutions can create and build assembly items, but all QuickBooks users can edit, purchase, and sell them.
Did You Know?
You can change a non-inventory part item to an inventory item. Although you can’t change the item type of an inventory item, you can make a one-time, nonreversible change to alter the type of a non-inventory item to an inventory item.
First in, first out (FIFO)—Users of this method of inventory valuation make the assumption that the first items you purchase are the first items you sell. A grocery store, for example, prefers to sell items on this basis, always moving the items with the earliest date to the front of the shelf so they never have any old stock on hand. The value of inventory at the end of the year (or reporting period) is determined by taking a physical inventory count and then matching the costs of the most recently purchased items to the quantity of items on hand. The cost of the earliest items purchased is then added to the cost of sales. By using this method, your inventory is always valued at its most current cost.
Did You Know?
QuickBooks Online Plus uses the FIFO method. Whereas the desktop versions of QuickBooks use the average cost method, QuickBooks Online Plus uses the FIFO method for inventory valuation.
Last in, first out (LIFO)—Users of this method of inventory valuation make the assumption that the last items (the most recent items) you purchase are the first items you sell. Imagine a clothing store, where the latest fashions are the ones that sell, whereas the older articles of clothing stay on the racks. Items remaining in your inventory are assumed to be the oldest items and are therefore valued at the cost of the oldest items purchased.
Specific identification method—Users of this method of inventory valuation have an inventory that lends itself to the tracking of individual items. As each item is sold, the value of the inventory on hand is reduced by the actual cost of the specific item. For example, all automobiles have a vehicle identification number (VIN), so tracking specific automobiles that go in and out of inventory is commonplace.
Did You Know?
QuickBooks Enterprise Solutions offers more robust inventory features. QuickBooks Enterprise Solutions has more inventory features and capabilities, and there is an Advanced Inventory option available. Features such as multiple locations, bar codes, specific identification method, and more are available.
Creating an Inventory Group
Sometimes you might want to group several inventory items into one mega-item, so you can refer to the group as a whole. For example, suppose you are a retailer who sells dishware. Your inventory might include plates, cups, saucers, and bowls, all of which could be sold individually. Alternatively, you could group together one place setting of a plate, cup, saucer, and bowl and sell the group as a single item. Construction and manufacturing companies can use this feature too. In this example, a construction company creates a group of items that together make up the supplies and labor required to build a wooden deck.
Set Up the Inventory Group
Select Lists, Item List. If the Add/Edit Multiple List Entries dialog displays, click OK.
Press Ctrl+N.
Select Group as the Type.
Enter a name for the group.
Enter a description for the group.
Check the Print Items in Group box if you want all the details of the group to appear on customer invoices. If you leave this unchecked, only the name of the group prints.
Enter the individual items that form the group.
Click OK.
Did You Know?
A variety of item types can be included in an inventory group. You are not limited to inventory part items in your inventory group. You can include other items such as non-inventory parts and service items in a single inventory group.
Timesaver
You can also get to a new invoice by clicking the Invoices icon on the home page.
Enter the customer name.
Enter the name of the group.
Verify that all other information is correct.
Click one of the Save buttons.
Managing Sales Orders
QuickBooks Premier and Enterprise versions offer a feature called Sales Orders whereby you can track all the inventory sales orders that have yet to be filled or invoiced. This feature is advantageous for companies that make repeat sales to customers and don’t want to invoice the customers separately for each sale, and for companies that need to create worksheets for organizing order fulfillment from a warehouse or other inventory storage facility. Fill out a sales order much like you would fill out a purchase order, and then track the progress of your sales orders through the Sales Order Fulfillment Worksheet.
Manage Sales Orders
Choose Customers, Create Sales Orders from the menu.
Enter customer name, date, and order information, just as you would if you were entering information directly on the customer’s invoice.
Click Save & Close to save the sales order.
Choose Customers, Sales Order Fulfillment Worksheet (not shown).
Note the fulfillment status codes in the Sales Orders portion of the worksheet.
Click on an item to see the detail of the sales order.
Select from several options for sorting the report.
Check off orders you want to fulfill.
Check the boxes for any forms you want to print.
Click Print to print the selected forms.
Click Close to close the report. Note that nothing you enter on this report is saved.
Press Ctrl+I to open an invoice form.
Enter the customer name. Open sales orders for this customer appear in the Available Sales Orders dialog box that displays.
Check off any sales orders that you want to invoice at this time.
Click OK to close the Available Sales Orders window and return to the invoice.
You are asked to indicate whether you want to invoice for all items or only selected items on the sales order (not shown). If you choose Selected Items, you can enter the quantity of items that you want to invoice at this time.
Information from the sales order displays on your invoice. Complete the invoice and choose a Save option.
Setting Up Reminders to Replenish Your Inventory
If you didn’t designate a reorder point when you set up your inventory items, now’s the time to do so. Edit your inventory items and enter how many of each item you want to keep in stock. Then use the reminders list to send yourself messages to reorder. Every time the level of an inventory item in stock drops below the reorder point, a reminder to reorder is added to your reminders list.
Create a Reminder to Replenish Inventory
Select Lists, Item List. If the Add/Edit Multiple List Entries dialog displays, click OK.
Click the item for which you want to establish a reorder point.
Press Ctrl+E.
Enter the reorder point.
Click OK.
Scroll down if necessary until you find the Inventory to Reorder reminder.
Double-click Inventory to Reorder. All items that have passed their reorder point display.
Preparing Inventory Reports
You can produce several standard inventory reports in QuickBooks. You can then use these reports to keep track of how many items are on hand, the value of your inventory, and pricing information. A detailed description of each type of inventory report is included. Remember that you can customize these reports to fit your needs, and you can export reports to Microsoft Excel if you need to present reports in a format not supported by QuickBooks.
Select Reports, Inventory or view the inventory report selections in the Report Center; then open one of the following inventory reports:
Inventory Valuation Summary
Inventory Valuation Detail
Inventory Stock Status by Item
Inventory Stock Status by Vendor
Physical Inventory Worksheet
Pending Builds
See the sidebar “A Variety of Inventory Reports” for a description of each of these reports.
Counting Your Inventory
Although QuickBooks keeps meticulous records of the inventory you purchase and the sales you enter, differences will occur between the amounts entered during the year and the actual quantity of items on your shelves. The more frequently you count inventory, the more likely you are to be aware of any loss or damage to your inventory. You should try to account for material discrepancies between your books versus your actual inventory records. To assist you in taking a physical inventory count, QuickBooks provides a Physical Inventory Worksheet that you can print and use while you count your inventory. In this example, the column that displays the QuickBooks count of inventory items is removed so the person making the physical count will be less inclined to rely on the computer-supplied numbers when counting inventory.
Select Reports, Inventory; then select Physical Inventory Worksheet.
To remove the Quantity On Hand column, click Customize Report. Uncheck Quantity on Hand and click OK (not shown).
To see the full text in a column, click the diamond between the column headings and drag it to change the column width.
Click the Print button.
Click Print in the Print Reports window (not shown).
Did You Know?
Many reports contain an export to MS Excel feature so that you can manipulate the data in Excel. Although some reports can be imported back to QuickBooks, we recommend that only advanced QuickBooks users attempt this, or unwanted changes can occur to your QuickBooks data.
Adjusting Inventory Quantities
After you take a physical count of your inventory, you might find that some of your QuickBooks inventory records don’t agree with the actual count at your business premises. You might need to make adjustments in the count recorded in QuickBooks. Check with your company’s accountant before making any adjustment in inventory quantities to ensure that such an adjustment is accounted for properly. Some financial and tax considerations must be addressed when making such an adjustment.
Select Lists, Item List.
Click the Activities button and select Adjust Quantity/Value on Hand.
Select Quantity, Value or Quantity and Total Value from the Adjustment Type list.
Enter the date on which you want the adjustment to affect your financial records. Often, this type of adjustment is recorded as a year-end adjustment.
Choose an account in the Adjustment Account list.
Click Find & Select Items to select multiple items or enter individual items.
For each inventory item that needs to be changed, enter the actual quantity on hand (or the change in quantity).
If needed, you can also enter a specific value of an item in the New Value column that displays.
Enter an optional memo describing the reason for the adjustment.
Click one of the Save buttons.
Adjusting the Default Price of Inventory
When you enter inventory items in QuickBooks, you have the option of entering the sales price for each item. When the price for an item has already been entered, you don’t have to remember prices when you create invoices for customers because QuickBooks automatically enters the price information for you. And here’s an even greater timesaver: If you need to change the sales prices on any or all of your inventory items, you don’t have to edit the items individually. Instead, you can bring up a window that shows all your inventory items and their prices and then go down the list, making changes to any of the items. Or you can select the items to change and order QuickBooks to change everything at once by a certain markup or markdown percentage or amount.
Select Lists, Item List.
Click the Activities button.
Select Change Item Prices.
Choose from the Item Type list what you want to display on this report.
Click to place a check mark in the column to the left of any individual item you want to change.
Make the price change in the New Price column.
Did You Know?
You can use the Select All feature, selectively. Save time by clicking Select All to select every item on the list. Then deselect certain items by clicking in the check mark column to remove the check mark on items you don’t want to change.
Alternatively, click Mark All to change all the inventory items at once.
Change the price of all marked items at once by entering a percent or dollar amount by which you want to change the price of the selected items. Use a minus sign if the change is to be a markdown instead of a markup.
Select whether the price change is to be based on sales price (Current Price) or cost (Unit Cost).
Click the Adjust button (even if the change is to be a markdown).
The new marked-up (or marked-down) prices are assigned to all checked items.
Click OK.
