• How QuickBooks Tames the Inventory Beast
• Set Up the Accounts You Need
• Create Your Inventory Items

How QuickBooks Tames the Inventory Beast

QuickBooks' inventory features work best for companies that stock more than one of an item and periodically reorder them. QuickBooks can also track products you assemble and resell (finished goods), adding assembled units to inventory and deducting component units from inventory when you build assembly items.

Inventory benefits you by...
If tracking inventory in QuickBooks makes sense for your business, you will benefit from:

• When you use purchase orders to buy inventory items, QuickBooks updates your inventory so you know which items are on order and when they're due to be received.
• Tracking the cost to you of the items you have sold (Cost of Goods Sold: COGS).
• Tracking the income you receive from the resale of inventory items.
• You can edit the list of components that makes up an assembly item (for example, if you change suppliers for a part) without needing to create a whole new assembly item.
• Knowing your current quantities on hand.
• Knowing the current value of your inventory.

• The cost of your old stock is $50 (10 shirts x $5.00).
• The cost of the new inventory is $600 (100 shirts x $6.00).
• The combined cost of the old and new inventory is $650.
• The average cost of your entire inventory is $5.91 ($650/110 shirts).

Set Up the Accounts You Need

To begin tracking inventory, first check to make sure QuickBooks set up the following accounts:

• Inventory asset (account type = Other Current Asset): This account tracks your inventory's current value. You don't have to create this account-QuickBooks creates it automatically when you set up your first inventory item.
• Sales (account type = Income): Tracks the income from the resale of inventory items. QuickBooks may have already created this account for you based on the information you entered in the EasyStep interview.
• Cost of goods sold (account type = Cost of Goods Sold): Tracks the cost to you of the items you have sold. On a profit and loss report, QuickBooks subtracts the total cost of goods sold from your total income to provide a gross profit before expenses. QuickBooks may have already created this account for you based on the information you entered in the EasyStep interview.

Create Inventory Items

Next, create inventory items for each part or product you carry in inventory. Before entering items into QuickBooks you need to:

• Do an accurate physical inventory.
• Gather your records for the value of items in stock.

• Set up an item for each kind of good you have on hand.
• Use names or part numbers to identify the items, including the Manufacturer's Part Number.
• If you want QuickBooks to remind you to order more of an item, fill in the Reorder Point field. When the quantity on hand for that item reaches this amount, a reminder will display on your Reminders list in the Company section.

1. Go to the Lists menu and click Item List.
2. Click Item at the bottom of the list and click New.
3. Click the Type drop-down list and choose Inventory Part.
4. Enter an item name or number.
5. If this item is a subitem of an existing item, select the "Subitem of" checkbox, and specify the other item's name.
6. Fill in the Purchase Information fields.
   What you enter appears in the Description column of checks, bills, credit card charges, and item receipts when you reorder the item. You can edit the description when you are filling out a purchase order if necessary.
   • Cost: (Optional) Enter the cost you expect to pay when you order or buy this item. You can change the cost at the time you purchase the item. The cost of a built inventory assembly item is always the sum of component costs (calculated with the average cost method).
   • COGS Account: Choose a different cost of goods sold account if you don't want to use the preset account. If this is an assembly item, this account can be different from the COGs account assigned to component items.
   • Preferred Vendor: (Optional) Select or enter the name of your preferred vendor for this item. QuickBooks displays the preferred vendor on the stock status report and on the physical inventory worksheet.
   
   
   
   
   
   
   
7. Fill in the Sales Information fields for information that you show to customers.
   • Description on Sales Transactions: What you enter here appears in the Description column of the sales form when you sell the item. You can edit the description when you are filling out a sales form if necessary.
   • Sales Price: Enter your sales price for the item. If your sales price varies, leave the field blank. Note that an inventory assembly item can have a different price than the sum of its components' prices.
   • Tax Code: Enter the sales tax code for the item. You must assign a single sales tax code to an assembly item, even if some of the component items have different sales tax codes. When you make a taxable sale, QuickBooks uses the sales tax item to calculate the tax, but uses the sales tax code to determine if an item is taxable or non-taxable. This field does not appear if you have not set up sales tax.
   • Income Account: Choose an income account to track the income that you earn from sales of this item. If this is an assembly item, this account can be different from the income account assigned to component items.
8. Fill in the Inventory Information fields for easy reordering of stock.
   • Asset Account: Choose a different inventory asset account if you don't want to use the preset account. QuickBooks uses this account to track the current value of your inventory. If you use the same account for all your inventory part items, the balance of this account shows the total value of your inventory at any one time.
   • Reorder Point: Enter the quantity at which you want QuickBooks to remind you to reorder this item. This information also displays on the stock status report.
   • Qty on Hand, Total Value: If this is an item that you already have in stock, enter the quantity on hand and the value as of the last time you measured your inventory. Be sure to enter any sales or purchases of the item that occurred between the date that you measured your inventory and today to ensure that QuickBooks' record of your quantity on hand for the item is accurate. If this is a new item that you are adding to your inventory, leave the Quantity on Hand and the Total Value at zero.
   • As of (date): If this is an item that you are converting to an inventory part item from a noninventory part or other charge item, the date you enter must be a date that is after the date of the last transaction that uses the item.
9. (Optional) Click Custom Fields to fill in or define custom fields for this item. (See "Custom Fields" in Help for more information.)
10. Record the item.

Next Steps

When you've entered all inventory items in QuickBooks, you are ready to begin taming the inventory beast. Check out "Inventory" in the QuickBooks Help file for more information. Or watch the Inventory video tutorials in the QuickBooks Learning Center. Next time we will look at how to use QuickBooks Inventory features to your best advantage.


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