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Sfactor503
Level 2

Inventory and Simplifying

Hello.

 

I run a small and mighty vintage store. I buy inventory from various places including thrift stores, estate sales, and rag houses. I also buy direct from vendors who create new contemporary products.

 

Because almost all of my items are one of a kind, I do not want to create one of a kind items because they will have to be deactivated on a regular basis. Rather, I am bulking items in my POS system, by category/grouping.

 

I am reluctant to manage inventory because right now I am using an average cost method. At the end of every month i review my total units purchased against my BOM inventory and then log my sales and of course deduct to get my EOM. I will literally end up with thousands of items and I can't have my life this complicated.

 

1) How do I enter my merchandise purchsases - These are literal expenses from the places I I go to. I rarely write purchase orders, I usually pay outright and have the goods in my hands then and there.

 

Are they entered as COGS- Merchandise Purchases? Or are they entered as Inventory Assets?

 

2) At the end of the month how do I log the Cost of The Goods Sold if I already know the average cost of a unit?

 

I am currently on Quickbooks Pro, but my business is SMALLLLLLL! I would prefer to not be on PRO and just manually handle my inventory until I can grow into this business more. The learning curve processes and systems such as QB pro is too long for someone who isn't on it very often...so I'd rather cross bridges as I come to them.

 

Thank you!

 

 

 

 

Solved
Best answer February 01, 2018

Best Answers
Rustler
Level 15

Inventory and Simplifying

@Sfactor503

 

Your screen shot of the account set up is fine, just click in the upper right block and rename the account.

Detail type is an intuit invention that does nothing to make things easier, in fact it confuses most users.

Donations are an issue, technically they are income at fair market value (FMV), and then you sell them.
In periodic inventory (method one - my preference) create an expense transaction
in the account details part ....
line one:  the inventory purchase asset account, and enter the FMV amount
line two: select your other income account (or better create an income account titled donation income and use that) and enter the same FMV as a negative number
save the zero dollar expense transaction

View solution in original post

16 Comments
EmilyCowan
Level 7

Inventory and Simplifying

Hi @Sfactor503, and welcome to QB Community :smileyhappy: ("Small but mighty vintage store" - I LOVE that!) 

 

Totally understand why you wouldn't want to create a new inventory item for each one-of-a-kind piece! What do you think of this advice from @Rustler, one of our frequent contributors?

Rustler
Level 15

Inventory and Simplifying

@Sfactor503

 

Alng with my post that @EmilyCowan referenced on periodic inventory, intead using QB inventory and creating inventory type items.

 

Do not use the QB created inventory asset account, nor create one named the same.  Doing so will complicate things down the road if you ever do use QB inventory.

Create the asset account as I state in the linked article.

Sfactor503
Level 2

Inventory and Simplifying

I have to laugh.

 

I just converted all my purchases from 2017 to an Inventory Asset Account. Now I have to go back and reconvert them all back. The good news...is I can do this :) - The bad news, I now have to touch it gain.

 

For 2018, I want to get things right. I just downgraded my plan to get off QB Plus. My business is small.

 

After reading your post, THANK YOU VERY MUCH. I just want to do what is easiest. I will be meeting with my accountant to walk through this exercise and make sure I get it right. Thanks so much!

Sfactor503
Level 2

Inventory and Simplifying

Hi there, last questions:

 

Should I be tracking inventory on QB Plus? I find that it's too complex for me right now with the types of items I deal with? Can I just do as you mention on regular QB Essentials?

 

How do I handle donations. 

Generally I end up buying bulk goods and often I end up donating a certain percentage of what I purchase due to the inability to resell it (damaged etc...).

 

How do I handle this quarterly.

 

This does impact my margin so I expect this to be COGS adjustment, but can you advise?

 

 

Sfactor503
Level 2

Inventory and Simplifying

WHen I create this asset account - how do I set it up. I'm limited on what I can do to desrcibe it.

 

Is it Other Assets and it's detail type Other Long Term Assets?

 

Screen Shot 2018-01-31 at 9.44.51 AM.png

Rustler
Level 15

Inventory and Simplifying

@Sfactor503

 

Your screen shot of the account set up is fine, just click in the upper right block and rename the account.

Detail type is an intuit invention that does nothing to make things easier, in fact it confuses most users.

Donations are an issue, technically they are income at fair market value (FMV), and then you sell them.
In periodic inventory (method one - my preference) create an expense transaction
in the account details part ....
line one:  the inventory purchase asset account, and enter the FMV amount
line two: select your other income account (or better create an income account titled donation income and use that) and enter the same FMV as a negative number
save the zero dollar expense transaction

View solution in original post

Sfactor503
Level 2

Inventory and Simplifying

Hi @Rustler

 

As you mention above,  is this the accounting process  for when I receive Donations? Please confirm. And if it is, I will keep this for reference.

 

Or is this the accounting process when I donate ?

 

What do I do when I Donate?  For example, I just went through a large amount of inventory and had to donate about 60 items.  This is a contribution of some kind but I don't have the time to do a FMV for each item - there has to be a simple way to mark this and account for this?

 

I go through this process about every 3 months when I assess my inventory and often find pieces that are not salable.

 

I am hoping as my business refines itself I have to do this less and less.

 

Best,

Sandra

Rustler
Level 15

Inventory and Simplifying

That was receiving donations

when you donate, it gets stickier

 

If you are taxed as a c- or s-corporation then technically you can have donation expense

 

if you are not taxed as a corporation then technically you can not donate, but you could call it advertising expense, since you might consider it to be fostering good community relations - doubtful it would ever be questioned, unless you are talking about some big bucks

vpcontroller
Level 11

Inventory and Simplifying


wrote:

WHen I create this asset account - how do I set it up. I'm limited on what I can do to desrcibe it.

 

Is it Other Assets and it's detail type Other Long Term Assets?

 

Screen Shot 2018-01-31 at 9.44.51 AM.png


 

"Is it Other Assets and it's detail type Other Long Term Assets?"

 

NO.

 

Inventory related asset items should be grouped together on the Balance Sheet under Assets and subcategorized as Current Assets, not Long-Term Assets.


Since you don't want to use the default QBO inventory account, you can select "Other Current Assets" for both Category Type and Detail Type in QBO. You can Name/Description any way you want. That will place in the correct position under Assets side on the Balance Sheet.

 

Hope this helps!

 

 

WeThieves
Level 1

Inventory and Simplifying

Hi @Rustler

 

Okay, so I'm creating this expense for the donations.

It's not much but for the end of the year of 2017, I'm looking at about $352 of FMV of the goods donated.

 

How do I create this expense? 

 

Do I credit the Inventory/Merch Purchases account and then debit the Advertising account? Community relations - I gave them to a good women's charity.

 

Thanks

 

WineGuy
Level 5

Inventory and Simplifying

Hello SFactor 503. In your situation tracking individual inventory items would indeed be burdensome and there's no IRS requirement to do so.  You just need to keep the receipts for all purchases and enter them as such.  Some clarification on accounts: COGS is a Profit/Loss account, Inventory Asset is a Balance Sheet account.  When you buy goods for resale it gets put into both accounts.  You say you want to keep your bookkeeping time to a minimum, I highly recommend you keep using Quickbooks or some other accounting software.  Worst thing you can do is not keep track of all your purchases which will throw off your P/L at tax time (= bigger tax bill).  Only downside to not tracking individual inventory items is not knowing what you paid for things at a later date.  Maybe put some kind of coded tag on individual items when they come in.   I have no idea how you value individual items in a bulk purchase but  there must be a recognized standard practice for your industry.  Good luck!

Sfactor503
Level 2

Inventory and Simplifying

hi @WineGuy

 

Oh. I'm using QB.

 

I keep a running track of inventory based on units purchased and total cost therefore understanding my Average Unit Price in total. I spent 20 years in buying and merchandising and knowing my AUP is helpful in creating my Initial markup and understanding my Average Sale Price and Gross Margin. The thing is I had a ton of financial people running reports on sophisticated systems that I don't have now. But, the 101's of retail math I know well.

 

That said, I'm confused by your statement of when I make a purchase it goes in both my P & L and my Balance sheet.  As @Rustler recommended I created a new Asset account called Merchandise Purchases.

 

So I enter my purchases as an expense in the asset account called Merchandise Purchases. Is this right? Feels right to me. Please confirm.

 

At the end of every month I look at my total units sold and multiply is by average unit cost for the month to get my total COGS that I create a journal entry for as described by Rustler.

 

Thanks for chiming in. I'm getting the hang of it.

 

Sfactor503
Level 2

Inventory and Simplifying

Hi @Rustler

 

Okay I created an expense for the inventory donations as community relations for the FMV of the goods (what I paid for them at cost).

 

I think I need to take this out of my Inventory asset account too, to deduct the value as I know longer have the assets.

 

Can you advise?

WineGuy
Level 5

Inventory and Simplifying

Hello again SFactor.  I would highly advise you stick with Quickbooks more than ever.  It will clarify everything for you once you see how P/L and B/S statements work.  You should have one "purchases" account of the COGS type.  When you write a check to someone for goods that is the account you select.  The amount spent adds that dollar value to your B/S asset account and subtracts that amount from your checking account (thus a balanced transaction).  Nothing is expensed until a sale has been made when all the COGS accounts (purchases, storage, shipping,  etc)  are subtracted from the sale price to get your gross income.  Quickbooks or other fully featured accounting software does this calculation for you.  Are you doing this with spreadsheets?  If so that's very  time consuming!   Manual Gen Journal entries is also time consuming.  Quickbooks works best if you use it 100%.   If some of your numbers are on spreasdheets and some in QB neither one will give you a complete and accurate picture of your business.  As far as which version of QB, Pro should do everything you need.  Premier has a few more inventory features relating to U/M and price levels but may not need those. Hope that helps.

Sfactor503
Level 2

Inventory and Simplifying

Hi Wine Guy,

 
You are making things more confusing for me. My business is small.
 
When I write a check/charge for the items I am buying outright they become mine. Therefore assets. Those assets are an expense.
 
I account for it by recording it as an expense but it is in the asset account. ONLY When it is sold do I shift those cots $ to the COGS. Nothing is a COGS until it is sold. It is an asset until then, therefore it does not go into a COGS account but the asset account.
 
I do everything in QB except manage inventory. I run perpetual inventory. I do not want to do inventory because every single item I have is unique and until I can get a better handle on my items and start grouping them by prices I am doing a perpetual inventory method which is working totally fine for me.  
 
The only numbers that are on spreadsheets for me are my units purchases so I can understand how many units I purchase on a given month and the total price I paid therefore allowing me to determine my AUC average unit cost. Certain months my purchases are higher to help me get in front of busier times of the year. 
 
I run QB basic, not PRO...I have too many one of a kind items that I would have to manually make inactive that it would drive me bonkers. My POS is square currently and it might change, but until then, I'm rolling as is.
 
 
 
WineGuy
Level 5

Inventory and Simplifying

Hi again SFactor.  Not trying to make things more difficult for you but you you made a misstatement in your latest reply:  "Those assets are an expense."  A purchase of goods for resale is not an expense, it's an investment with the goal of selling the goods for more than you paid for them, i.e. profit.  You rightly say afterwards it goes into COGS at the time of sale (I said the same thing earlier).   Purchases of gasoline and office supplies are "expenses."  I'm not familiar with Quickbooks Basic,  are you talking about Online?  Weren't you considering switching from Online to Desktop?  Pro is the "basic" version.  The switch is complicated as Rustler said.  Best to import all your lists into a new desktop database at the begining of a new tax year.  Good luck!

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