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QualGenSer
Level 2

Breaking down a kit into individual parts

I started a generator repair business in Nov '18. I filed my LLC and took care of licensing and insurance and everything, but didn't actively start the business until Jan 1/ '19.

I have a couple of questions.

1. To become an authorized dealer with one manufacturer, I was required to purchase a parts "starter kit", at a greatly reduced price. This kit contained many parts, as well as some specialty tools that I will need. I was invoiced for the cost of the kit, but the invoice was not broken down into individual parts and tools. How do I break it down for inventory purposes? IE - the kit contained 50 different parts, and 10 different tools. One of the parts, say P1, would normally cost me $10 to replace at dealer cost, and I received one of them. Another part, say P2, has a dealer cost of $5, and I received 5. One of the tools, T1, would cost me $100 at dealer cost. If I add up all the dealer costs to replace everything in the kit, the total comes out to $3,800. I paid $1,800 for the kit. Obviously some of the kit will be listed as inventory parts, but some will be listed as assets. I have no idea how much I ended up paying for each individual item, as I was invoiced for the kit, not for each item. How do I break that down?

2. When I ordered the above kit, as well as other start up purchases, I paid directly out of my pocket (including opening balances of 2 bank accounts). How does that get recorded?

3. When adding new parts items to my list, there is a drop down for the income account to credit. There are 2 options that I can't differentiate - Parts and Materials Sales, and Sales Income. What is the difference? Which should I use?

4. In the Add New Items, there is a drop down in COGS with 2 options that I also can't differentiate - Cost of Goods Sold, and Purchases - Parts and Materials. When should each be used? Is there really a difference?

5. Last question - since the cost of items in the parts kit will be different than the cost of replacing the parts as I use them, how do I proceed? Use a different part number for the parts in the kit (maybe adding a "P" in front of the actual part number) and then making the part inactive when I use it?

Super thanks for any help you can offer.

 

2 Comments 2
JanyRoseB
QuickBooks Team

Breaking down a kit into individual parts

Hi there, QualGenSer.

 

I'm glad you've reached out to the QuickBooks Community. Let me help provide some insights about recording an item in QuickBooks Desktop. 

 

I appreciate you for providing the details which help me replicate in my QuickBooks sample file. To answer your first question, since QuickBooks Desktop doesn't support a starter kit, what you need to do is create items for individual parts and tools. You have an option to set the items as inventory or fixed asset. 

 

To do this, you can check these articles on how to create an inventory and fixed asset items:

Once done, you'll need to create a bill transaction to record the $1,800 payment you made for the starter kit. Here's how:

  1. At the top menu bar, click Vendors.
  2. Select Enter Bills.
  3. Select the vendor.
  4. Choose the date.
  5. Select the Expense tab to enter a bill for anything that your company buys, sells, or resells in the course of business such as products, shipping and handling charges, discounts, and sales tax (if applicable).
  6. Choose the expense account or the item.
  7. Enter the amount.
  8. Click Save & Close.

For additional reference, you can check this article on how to enter bills

 

For your second question, since you've paid the kit using your personal funds, you'll need to create an Owner's Capital in the chart of accounts and record it in the Journal Entries. 

 

You can check this article on how to create an Owner's Capital in the chart of accounts: Understand QuickBooks Chart of Accounts.

 

Once done, here's how to record a business expense paid with personal funds in the Journal Entries:

  1. From the QuickBooks Company menu, choose Make General Journal Entries.
  2. On the first line, specify the appropriate expense Account for the purchase.
  3. Enter the amount of the purchase in the Debit column.
  4. (Optional) Enter a customer Name to associate the expense with a customer.
  5. On the second line, in the Account column, enter the Owner's equity.
  6. In the  Credit column, enter the amount of the purchase.
  7. Click Save & Close

With regards to your third and fourth questions, you'll need to consult an accountant to assign a correct account and to ensure that your books are accurate. 

 

For your last question, since QuickBooks uses average costing to determine the value of your inventory and the amount debited to COGS when you sell inventory. You can update the cost on the item if you need to make some changes or purchases. 

 

To learn more about average cost, you can visit this article: Understand Inventory Assets and COGS tracking.

 

If you need further assistance with the steps from our live support, you can contact our QuickBooks Desktop Support Team. They have the tools to pull up your account and do a remote session.

 

Here's how you can contact our live support:

  1. Select QuickBooks Desktop Help from the Help menu.
  2. You can also press F1 on your keyboard to bring up the same Help Panel
  3. In order to route you to the correct support expert, we need to know what type of question you have.
  4. Click Continue.
  5. We’ll provide you a few options. You choose which one is best for you.

This will get you on the right track. Please know that I'm just a post away if you have additional questions about recording purchase part in QuickBooks. Wishing you and your business continued success. 

QualGenSer
Level 2

Breaking down a kit into individual parts

Thanks for the reply.

Isn't Owners Capital the same as Members Equity, or do I need to actually start a new account?

 

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