Inventory Item entry with regard to COG and Inventory Asset accounts

rprimmer · ‎March 10, 2019

Newb question: I'm trying to determine how granular I should make my inventory items accounts with regard to COG and Inventory Assets. 1) I am concerned that my average cost may be inaccurate. Theoretic scenario: I have inventory parts: Prints, Cups, and Candles. So that I can accurately calculate average cost, would I need to have an inventory asset account for each? Should my COG be broken down into matching accounts: ie: COG:Prints, COG: Cups, COG:Candles 2) If I'm using the assemblage feature, I'm thinking my assets accounts need to be granular to the parts to get an accurate average cost of the assemblage. Would this be true? Would COG breakdown as well? 3) I am only using one Sales account. Would that be valid?

Rustler · ‎March 11, 2019

Inventory asset is a summing account in QB, think of each item as a sub account. each item holds qty on hand and average cost.

that is one reason why you can never use a journal entry for inventory asset, there is no way to affect item cost in a journal entry, or any other kind of transaction

so you buy the item candles, when you do QB will increase the qty on hand, and do a new average cost calculation to update item average cost.

All you really need is one sales income account and one COGS account, though many of us also create a sub cogs account called shirinkage/loss. We use that account when doing an inventory adjustment after a count of the items to expense the cost of damaged, lost, stolen items.

View solution in original post

Rustler · ‎March 28, 2019

@rprimmer

QB works best if you do not use inventory sub accounts and there is really no reason to do so.

To have an assembly item you must have premier or higher, do you? If not I highly suggest you upgrade.

Names, QB works on names, think of the name as the sub account.
customer>name
vendor>name
Inventory>name

all transactions are segregated by name.

So for inventory you enter the purchase of the named item, QB keeps the total on ha

nd and computes the average cost of that qty on hand when a purchase occurs for that name. That average cost per named item is what is used to post to cogs when you sell it.

When you tell QB premier to build an assembly item, all the items in the assembly item list (BOM) are removed from inventory in the qty specified in the BOM, the average costs of all those items are added and that total becomes the cost of the assembly item. Then you see the assembly item and that cost is posted to COGS.

You should not post to inventory asset at all. It will not affect item cost, but it will change the total value of the inventory asset account on the balance sheet. The value of inventory asset on the balance sheet should match the total inventory value when you run the inventory valuation summary report.

View solution in original post

Rustler · ‎March 11, 2019

Inventory asset is a summing account in QB, think of each item as a sub account. each item holds qty on hand and average cost.

that is one reason why you can never use a journal entry for inventory asset, there is no way to affect item cost in a journal entry, or any other kind of transaction

so you buy the item candles, when you do QB will increase the qty on hand, and do a new average cost calculation to update item average cost.

All you really need is one sales income account and one COGS account, though many of us also create a sub cogs account called shirinkage/loss. We use that account when doing an inventory adjustment after a count of the items to expense the cost of damaged, lost, stolen items.

rprimmer · ‎March 27, 2019

I thought I understood but as I'm going through to set the inventory assets sub accounts correctly, I'm not quite sure I do. Here's a scenario I have:

Item Parts:

backer board 8x10

backer board 11x14

mat board 8x10

mat board 11x14

print 8x10

print 11x14

Item assembly:

8x10 matted print = backer board 8x10, mat board 8x10, print 8x10

11x14 matted print = backer board 11x14 mat board 11x14, print 11x14

To get the quantities and costs to calculate correctly so I can identify the costs of the item assembly correctly to make sure I am charging enough to make a profit, would I need to create a subaccount for each of the item parts: ie: inventory assets: backer board 8x10 and inventory assets: backer board 11x14??

If I used a general inventory assets accounts: ie: inventory assets: backer board and write all types of backer boards to that account, is that affecting the quantity and average cost??

Thanks so much for your help!

Rustler · ‎March 28, 2019

@rprimmer

QB works best if you do not use inventory sub accounts and there is really no reason to do so.

To have an assembly item you must have premier or higher, do you? If not I highly suggest you upgrade.

Names, QB works on names, think of the name as the sub account.
customer>name
vendor>name
Inventory>name

all transactions are segregated by name.

So for inventory you enter the purchase of the named item, QB keeps the total on ha

nd and computes the average cost of that qty on hand when a purchase occurs for that name. That average cost per named item is what is used to post to cogs when you sell it.

When you tell QB premier to build an assembly item, all the items in the assembly item list (BOM) are removed from inventory in the qty specified in the BOM, the average costs of all those items are added and that total becomes the cost of the assembly item. Then you see the assembly item and that cost is posted to COGS.

You should not post to inventory asset at all. It will not affect item cost, but it will change the total value of the inventory asset account on the balance sheet. The value of inventory asset on the balance sheet should match the total inventory value when you run the inventory valuation summary report.

rprimmer · ‎March 29, 2019

Thank you. That helps alot. I do have premier. Very grateful for all your help!

Rustler · ‎March 30, 2019

You're Welcome

btwist · ‎March 31, 2021

@Rustler I'm curious if you could provide insight on Raw - WIP - Assemblies - FG?

Currently using only RAW and FG. Enter JOB SHEETS which add quantities into FG, and subtract BOM defined materials from RAW.

Desire to Manually transfer RAW into WIP, so that the actual RAW quantities accurately represents what is in warehouse. Then use assemblies to add qty to FG and subtract materials from WIP.

How do I have settings in items so this flows correctly?

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Inventory Item entry with regard to COG and Inventory Asset accounts