I'm just starting to get things switched out of QB Self Employed to QB Online and I don't fully understand how to deal with past transactions related to inventory. My situation is that in QB Self Employed as it didn't have inventory tracking capability, I was doing all of my invoicing from another program that was tracking some of my inventory, and the rest of my inventory I was tracking with a spreadsheet. Then those sales invoices I would just total up at the end of the month, and enter one transaction into QB Self Employed at the end of the month as my total sales for the month. In the meantime, any transactions to purchase inventory have been categorized as Other Business Expenses with a note Inventory in QB Self Employed, so I do know which expenses for the year are inventory related.
My question is how do I proceed from here? Do I categorize all inventory transactions as Inventory Asset in QB Online, and then independently from that enter all my inventory as it stands now? Going forward is this the right way to track inventory?
Make sure you are switched to QBO Plus to track the inventory
then visit the following reference
Properly accounting for and tracking inventory is an important part of the bookkeeping process. I'm glad that you want to ensure that you're doing this as accurately as possible. QuickBooks Online makes it easy to manage your inventory, and I'll explain how.
As @Fiat Lux - ASIA explained, you'll need to have QuickBooks Online Plus to track your inventory. You'll need to turn it on by navigating to the Gear icon then Account and Settings. Click the Sales tab on the left, then the Edit pencil next to Products and services. Turn on Show Product/Service column on sales forms, Track quantity and price/rate, and Track inventory quantity on hand. Select Save and Done. Now you'll want to add your inventory items from the Products and Services page within the Sales page. You'll be able to enter your current quantity on hand, and as you sell inventory items to your customers and order more from your suppliers, the amount will adjust accordingly.
The article below goes over everything from setting up inventory tracking, to setting reorder points, checking what's in stock, and reordering from your suppliers:
When it comes to categorizing your expense transactions when purchasing or re-ordering inventory, you can use the option to enter Item details to select the specific inventory item that you want to re-order. The accounts that you've selected for Income and Expense when setting up the item will be affected according to the inventory you order or sell.
Here are some additional resources on tracking inventory in QuickBooks Online:
I know this'll have you tracking inventory in QBO like a pro! I'm here if you have additional questions.
Thank you. So when it comes to entering the inventory expenses as they come up, where do I enter the item details and how do I categorize the transaction as it's downloaded from my bank? Do I have to do a purchase order up for each order and then exclude the transaction from my bank paying for the order? Or do I just increase my on hands and change my cost on each item (if need be)? Will that correctly log the assets I've purchased? What happens when we have stock on an item already, and then reorder it at a different price, so now I have multiples of the same item but the cost was different per item? How does it log the COGS then once one of them is sold?
For previous inventory expenses for which I no longer have stock on hand (because it was sold), how should I be correctly entering these expenses so it doesn't inflate the total value of inventory I have on hand now? Just categorize those transactions to the COGS account?
Sorry for all the questions, trying to understand what the system actually does so I don't create a nightmare for myself at tax time!
Thanks for expanding on your questions Carissa. I want to make sure that you fully understand the capabilities of the fantastic inventory management feature in QuickBooks Online.
When it comes to recording inventory expenses with respect to the bank feed, you have two options. One option is to categorize it as an Inventory Asset, which will not increase the quantity on hand for the items you're re-purchasing. You can then manually correct the quantity on hand for your inventory from the Products and Services page of the Sales menu. Entering a PO isn't necessary here, but if you prefer to keep things organized by entering POs, then copying them to bills, you'll still have the option to match a bill to the transaction from your bank feed.
The second option is to enter the expense first, then match it to the transaction in your bank feed. Do this by following the steps below:
By entering the expense this way, with the inventory items specified, the quantity on hand of the items will be adjusted automatically.
When it comes to reordering inventory at a different price, you can simply override the Amount field when entering the expense transaction. To adjust the selling price, use the same method - just override the amount field on an invoice to reflect the new selling price. If both amounts are changing, it might be worthwhile to either edit the item to reflect those changes within the Product and Services page, or create a new inventory item with the new prices.
To answer your last question; if you're entering your transactions by specifying the items bought or sold, you won't run into any issues with previous inventory. If you're entering invoices for items that you've already sold and don't have in stock anymore, picking an account is something an accountant or bookkeeper can help with. Accountants can help you determine the best accounts to use, when, and how they will impact your books.
If you're already working with an accountant or bookkeeper, you can invite them to work on your books with you by navigating to the My Accountant tab on the left, then enter their email address. Once they've accepted the invitation they'll be able to log in and work on things like inventory management with you. If you're not yet working with an accountant, we have a database of QuickBooks-certified accountants and bookkeepers that are more than happy to help you use QuickBooks Online to its full capacity. Get in touch with one of our ProAdvisors by using the Find a pro to help button.
When you're just getting started with a new accounting software there can be a bit of a learning curve, but I know you'll have things figured out in no time. Thanks for becoming a member of the QuickBooks Online family - we're lucky to have you!
I was trying to use the first method of adding inventory, by categorizing as an inventory asset then increasing the on hands manually. However this seems to be inflating my inventory asset account as the expense goes into the account, then increasing the on hands causes that same amount to go into the account again, doubling the value of inventory being added to the inventory asset account. Not sure if I'm not understanding correctly how to categorize the bank expense?
I see what you mean Carissa. When it comes to choosing the correct account to categorize your expenses, as well as the correct account when making inventory adjustments, an accountant is your best resource. They'll know of the correct accounting methods to follow to ensure the balances of your accounts are adjusting correctly. I mentioned how you can get in touch with an accountant in my reply above.
I also want to provide you this comprehensive article on how to Categorize and match online bank transactions in QuickBooks Online. I know it'll be helpful.
It's important to me that you get the assistance you need on this, so if after speaking to an accountant you're still unsure, you can reach out to our support team for one-on-one real-time support using the steps below:
Phone: Our agents can be reached at 1-855-253-1536 from Monday to Friday between 9 a.m. and 8 p.m. EST.
Schedule a Callback or Chat: Click (?) Help in the upper right > type and enter "Contact support" into the QB Assistant > click Contact Us > explain your situation > click Let's Talk > choose Get a callback or Start a Chat. Support is available at the same times as listed above.
I wish you all the best!