Inventory Adjustment

[beeman]

Hi Everyone,

We run a small skin care production business. We take raw materials and produce lotions, soaps, lip balms, etc.  I want to adjust the quantity of raw materials and finished goods we have. When I do that it wants me to select either a income or expense account, which in my mind it is really neither.  I selected inventory asset because I am neither buying nor losing materials just adjusting the amount. Is that alright to do or will it cause problems down the road? Thanks

[Anonymous]

The value of the various inventories should all be in QB - but how and where can vary.

Finished goods for resale usually should be 'inventory items', and there should be a current asset account for 'inventory items' that contains nothing but these items.

Your raw materials can also be defined and itemized as 'inventory items', or they can be managed as 'non-inventory items' and the value be held in a separate asset account for raw materials. 

If the production takes some time or goes thru stages then you may also need another separate asset for WIP (work-in-process) to account for stuff that doesn't fit into either the raw or finished category.

The answer to your question - where your 'inventory adjustment' posting goes -  depends on how you are now accounting for raw matls & wip.  If the raw matly that go into the Fg are non-inventory current asset then that is the account where the adjustment goes.

Im skipping the discussion of 'assembly inventory items' for now.     

[beeman]

Hi Mike,

I have my raw materials set up as inventory and the things I make from them as inventory assembly.  When I adjusted my inventory I wanted to save it as inventory assest  account.  That should be the correct one right?

[ScriptDawg]

Hi there, I think it should be registered as an expense account simply because the raw material contributes directly to making the final product. However, inventory management in QuickBooks for manufacturers can just be messy overall and you run the risk of going into negative inventory if you ship of products that you’ve manufactured but you didn’t notify QuickBooks that you had new inventory. Have you tried looking at the QuickBooks app store? There’s software like the Katana manufacturing ERP that allows you to track your manufacturing processes there, and then generate bills/invoices for QuickBooks at a click of a button. At least that way you can easily (and automatically, in real-time) track and adjust inventory, and then push the costs over to QuickBooks. The software is intended to be integrated with QB Online, but it works independently too.